Investing Is A Marathon

Sometimes, sage wisdom comes not in the form of new ideas, but the phrasing of existing ideas. A long-held belief in investing is that it involves risk. However, I heard someone this week say it in a different way - risk is the cost of investing. That ties into the inspiration behind this week's musings - the 1981 surprise hit

“Chariots of Fire." Here’s some trivia about the movie:

• This film was produced on a stunningly low budge of only $5.5 million. It grossed more than $59 million at the box office, which was strong by 1981 standards.

• To day that this film was a surprise hit, is probably under-stating it's success. The film was nominated for 7 Oscars and won 4 - Best Screenplay, Best Costume Design, Best Picture, and of course, Best Original Score for Vangelis' masterpiece.

• This film was largely absent any major movie stars. Acting stalwarts like John Gielgud and Ian Holm were fairly well known, and budding actors who would go on to see success like Alice Krige and Ben Cross put in strong performances. The rest of the cast were largely stage actors or unknowns who made this movie a success.

• Writer Colin Welland couldn't come up with a catchy title for his film and had begrudgingly called it "Runners." However, while listening to the BBC's Sunday evening religious music series the hymn "Jerusalem" included the lyrics "Bring me my chariot of fire." And, a title was born.

• Producer David Puttnam screened the movie for Eric Liddell's wife (if you haven't read the story of Eric Liddell, it's well worth the read). She thought the movie fully captured her husband's character and story. However, she did note that her husband was a much more graceful runner than was shown in the film. You can't win them all.

Here's what we've seen so far this week..

Investing Is A Marathon. Investors are facing a conundrum in how to invest at elevated equity valuations. On the one hand, investors who are in the "distribution" phase of life (i.e., living off of their investable assets), the risk in adding more to equities does not match up with their daily needs and lifespan.

However, for investors in the "accumulation" phase of life with more than 10-15 years before retirement, investing in equities builds wealth. However, it comes at a cost, and that cost is risk (or, volatility). At times like these, when investing involves uncertainty, it's important to remember the basics of investing - if you want more return, you must be willing to take on more risk. Stocks provide the best way to build wealth over the long term, but as we already alluded to, there is risk.

However, even investing at all-time-highs still brings reward in the long run. While investing at an all-time-high brings the risk that markets will decline immediately after making such an investment, over the long-term (5+ years), that investment will bear fruit, out-performing investing on any day in the markets. Investors, however, often fail to see the long-term and get upset when a new investment declines almost immediately. Why? Because no one likes to lose. But, patience usually wins the day. In "Chariots of Fire," Harold Abrahams wants desperately to run for Britain in the Olympics and to win gold. He laments to his girlfriend, "If I can't win, I won't run." To which she replies, "If you don't run, you can't win." Sage words for investors - if you don't invest, you won't grow your nest egg.

Is The FOMO Trade In Trouble? It's early, but it appears the Mag 7 names that

have enthralled investors for the past two years are giving up some ground to the rest of the market. The Mag 7 stocks are under-performing the S&P 500 Equal-Weighted Index by 150 basis points this year. Since Dec 3rd of last year, the Mag 7 stocks have been a bit range-bound, while the Equal-Weighted Index has bounced back nicely. In addition, the top 10 names of the S&P 500 Index, based on capitalization weighting have also led the index higher over the past two years. Yet, so far this year, the top 10 names are up only 2%, on-average, for the year, while the next 10 names are up, on-average, 11% for the year.

The breadth of the rest of the market is improving as well. The numbers of stocks advancing in the S&P 1500 Index versus the number of stocks declining stands at 1,232. In other words, more than 82% of the index is moving higher. Lastly, the Tech sector has largely driven much of the S&P 500 Index's gains the past two years, but that's slowing. Technology is the 2nd worst-performing sector so far, year-to-date. Diversification away from over-valued sectors would be wise for investors to consider. Harold Abrahams' trainer in "Chariots of Fire" tells him not to worry about Eric Liddell. Sam Mussabini encourages Harold about the shorter race Harold will be competing in when he says, "But a short sprint is run on nerves. It's tailor-made for neurotics." Trading based on FOMO is akin to running a short sprint in investing.

Invest To Win? As previously mentioned, investors like to win - no one likes to lose. that doesn't mean that investors should disregard being vigilant.

However, if a portfolio is properly diversified, something in the portfolio will be under-performing. If every holding in a portfolio is going up, there is a high degree of correlation, which means, most of those holdings will go down together, as well. However, if the asset allocation is reasonable, the holdings that under-perform will not drag down performance dramatically. Yet, a reasonable allocation will also reduce volatility and allow for sufficient growth over the long-term.

Harold in fact loses to Liddell in a preliminary race prior to the Olympics in the film. He laments over the loss and his girlfriend, Sybil, chides him, "If you can't take a beating, it's for the best." To which Harold responds, "I don't run to take beatings. I run to win." No words have been more poignant with regard to investing. No one wants to take a beating, but a fact of life is that we are handed a beating once in a while. That doesn't mean we ought to give up. The declaration that the 60:40 asset mix of stocks to bonds is dead is fabricated. In reality, the 60:40 portfolio would have garnered a double-digit return in 5 of the last 6 years. A double-digit compounded rate of return will likely get an investor to reach a set of realistic goals. Perhaps we should listen to the advice of Sybil when considering our long-term investment strategies.

Here’s the Oscar-winning song from Vangelis...

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The information contained herein is for informational purposes only and is developed from sources believed to be providing accurate information. The opinions expressed are those of the author, are for general information, and should not be considered a solicitation for the purchase or sale of any security. The decision to review or consider the purchase or sell of any security should not be undertaken without consideration of your personal financial information, investment objectives and risk tolerance with your financial professional.

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