As many of you know, I spent the last week in Yellowstone fishing with a group of family and friends. It was a wonderful trip! I’m a somewhat perpetual intermediate fly fisherman. But I have the luxury of fishing with some truly word-class fishermen. They taught me everything that I know about fly-fishing, and yet they’ve probably forgotten more about the endeavor than I can ever hope to learn.
As I was there, I couldn’t help but notice the many parallels between fishing and investing. Hopefully you will appreciate some of the lessons…
“There is a fine line between fishing and just standing on the shore like an idiot.”
Plan for Patience
It’s a truism that both investing and fishing require patience. You may cast dozens of times (in nearly the same location!) before you ever catch a fish. But it’s actually much more than that. When you go out on the stream, you need to plan to be patient. You need to be prepared. If you are planning for a long day, bring plenty of food and water. If it might rain (short thundershowers are common) bring raingear so you can wait it out. If it’s sunny, bring a hat and appropriate layers… you get the point. Nothing can spoil a day easier than needing to go back to camp because you are cold, hungry or have the wrong gear. Be ready for a full day of fishing.
Similarly in investing, people often think they are patient. But at the first sign of turbulence, they feel the urge to adjust their plan. Or they’ve put themselves in the situation where they don’t have their financial house in order and find they need to withdraw funds at inopportune times. When you build an investment strategy, you should plan on staying the course for an extended period of time. Construct your personal financial situation so that you have sufficient rainy-day cash that will ensure you can stick to your plan during tough times. Make sure that your monthly cash-flow budget allows you sufficient flexibility to continue saving and deal with any interruptions to your employment. Be ready to let your investment strategy work.
Be Efficient and Effective
Watching a good fisherman is a marvel of efficiency (this is not me). From years of practice, everything is as effective as possible. When tying on their fly, they are precise, practiced and quick. When casting, no motion is wasted, they are effective at getting their line out quickly and on the water. They rarely have to cast twice since they are precise in the placement of their fly. Movements are methodical and smooth so as to avoid unwanted noise or distractions. All things equal, the longer your fly is on the water, the more fish you will catch.
For me, the parallel in investing is cost effectiveness and portfolio construction. When building an investment portfolio, look for products that have the lowest cost of operation. The less money that gets wasted on investment costs, the more you will have working for you in your investment strategy. Additionally, when building a portfolio, make sure you understand the building blocks that you are using. Use as many as necessary to capture the strategy that you are implementing, but no more. Know the appropriate location for each product to take advantage of its inherent tax efficiency or in-efficiency. This will reduce confusion, taxes and trading costs. I’ve reviewed many portfolios that had too many components, major overlap in the investment products and little to no consideration for tax implications. All things being equal, having more money invested over time will yield better returns than a portfolio with inefficient implementation.
You can be prepared, cast well, enjoy a sunny wonderful day, and still not catch any fish. The fish aren’t required to bite just because just because you showed up with your five hundred dollar rod. Sometimes, despite your best efforts, the fish just won’t bite. But you can rest assured, if the fish are biting, and you are not there, you won’t catch anything.
Investing is the same. Just because you implement a well-constructed portfolio, it doesn’t mean that the markets will magically deliver to you the return you want in order to meet your goals. This is something that we should all probably keep in mind as we pass the eight anniversary of the current bull market. But similar to fishing, if you aren’t there when the markets are running, you can be sure you won’t get the returns.
Let's go catch some fish...
Note: The contents of this site are general in nature and not intended as specific investment advice. All investments are subject to risk; including loss of investment value. If you have any question regarding investments or concepts in these pages, please consult with an investment professional.