Tuesday, July 9, 1996
In Search of the Next Iomega
by MF Dowman

Two topics guaranteed to elicit strong emotional responses in most people are money and religion. I think that's partly the result of the one's teachings about the other. In many religions, there's almost something suspect about money and its acquisition, and that cultural bias creates interesting dynamics in our society, even though America in the late twentieth century is arguably a secular society.

But I'm no theologian and rather than wade into waters deeper than I can handle, let me wrest this beginning back to my topic, investing. The reason I brought religion up in the first place is that the mainstream "Protestant Work Ethic" (although the same "ethic" can be attributed to virtually any religion) has affected our views on investment approaches, too.

Investing, like any work, so the feeling goes, is a very serious business. And it's hard. Not just anybody can do it. And for somebody to claim that it's easy, even worse, that he has a "system" to make it that easy ... well, we're looking at Purgatory at least.

This "work ethic," then, has built up a fundamental mistrust in the investment community of anything that makes the process look simple. And let's face it, if you're using the Dow Dividend Approach or Investing For Growth, what could be simpler? Yet we know the simple approaches work, and work well. Anyone using such an approach, or even a combination of such approaches, has more than doubled the compounded return of the market since 1980 (much longer with the Dow Approach).

Nevertheless, I'll grant the investment community its contention that it's not easy to be an investor. But unlike their belief that it takes hours and hours of research by a well paid staff for each stock selection, the difficulty for most of us using a mechanical approach is to leave it alone and allow it to work. It's hard to watch your Dow stocks slump 10%, 15%, even 20% and not panic into selling out (usually at exactly the wrong moment). It's hard to be patient in the short run while waiting for that long-term great performance.

I'm sure I'll be ridiculed for suggesting that investing can be easy, but that doesn't concern me. I'm talking about investing, not getting rich overnight. And investing (at least the act of choosing which stocks to invest in) IS easy using these mechanical approaches. Where the process gets difficult, and this is true of most activities, is remaining disciplined in using the approach and staying focused on the long-term time horizon rather than the immediate forecast.

As with sin and guilt, the hardest part of investing (and life) is overcoming our own worst tendencies.

Transmitted: 7/9/96