A larger financial twitter personality yesterday commented “During this drawdown I’ve realized I’m a real investor.”
To me that implies that this person questioned whether they should or should not be investing in the past. If you read their more recent letters, they are candid about underperforming in the recent past, particularly given the late ’21 and current drawdown.
But the question in my mind is what is this person’s goals? Is it to outperform a benchmark? Is it to be able to post that they have a double digit investment track record?
Those are really tall goals to set. The funny thing about markets is the cost to get in the ring is zero. But the other people you are playing the game in the same ring with are outright pros. People with huge research budgets, decades of experience, large professional networks, huge geographic footprints, etc. Furthermore most individual punters who set out on this goal look at mid / large cap names because it’s what interests them. It’s what in the news. They are the products they interact with and own. But that is precisely where the pros play.
For me / us, our goals are clear. To provide stable and increasing investment income through good times and bad. So I don’t care what the benchmark does. I care about the process I’m implementing and the constant refinement of that process. I invest in debt, real estate, and equity. All of them must produce cash flow to us today. I keep a strong rainy day fund for our living expenses and invest incrementally versus trying to push out big slugs when I “think” the time is right. I strive for as much diversification as is possible.
All is to say, the bar for our existing investments really is “are these companies or assets generating enough cash to pay us?” versus will earnings increase or will the multiple reflect what I think it should be. And that makes it much easier during a drawdown to evaluate if the process is working or not. And that makes it easier to sleep at night.