Holding Firm in Tough Times

by David Forrest
([email protected])

Alexandria, VA. (Sept. 14, 1998) -- One of the things I value most about the Motley Fool is the interaction our members have with one another out on our message boards. Either celebrating when things are good, or lamenting together when things are bad, members of our community join together and help each other out. On our web Workshop board, a member named GlowingFire made an outstanding post today in which he wrote:

Sticking with any model in this market is hard. I don't know anyone whose portfolio isn't down significantly over the last month or three. And it is particularly hard to stick with a fixed model, when the model designer was touting it as having extraordinary returns, but here and now the returns are not so hot.

Too many people are looking for a quick fix, I think, with mechanical models, and can easily lull themselves into thinking that if they invest in it, they are guaranteed a phenomenal return now, today. If it doesn't happen, they get edgy. Yes, it does take discipline to stick with these models through times like these, particularly if you are brand new to taking responsibility for your own investments. But it takes discipline to stay in this market at all, if you believe in a buy-and-hold strategy, mechanical or otherwise.

Hats off to GlowingFire for these words. It DOES take discipline, and it DOES take staying power to invest in the equities markets. We don't know what will happen this week or next month. What would you do if the market lost ground this year? Next? The year after? Is it unheard of to think that we could have three poor years in a row? Definitely not. Would you get bored and bail out? Every investor needs to ask these questions and offer up brutally honest answers.

This sort of discipline is incredibly important, especially if you invest in mechanical models. The book Unemotional Investing is titled that way for a reason. It's supposed to be unemotional. You're not supposed to worry about it, even though you do. Another member of the community wrote this today:

I don't like to keep stocks like PMTC (a UG-5 stock in July) or TLAB for many months after a disaster.

While understandable, this goes against the basic premise of unemotional investing. While we're always looking for better ways to refine the screens (witness Louis's recent musings on how to use a margin screen to better your returns, and my discussion last Thursday of beta calculations), the whole idea is to not think about "disasters" in your stocks. If you accept the notion of the screen, you must let it run its course.

I think everyone who reads this today needs to do a "gut check" and ask themselves if they're really in it for the long haul. If you're not, take all of your money out of the stock market, because it can be incredibly cold and costly to those who don't think about the long term. If you are willing to be tough, be disciplined, and weather any storm in your portfolio, then pop open a bottle of root beer and toast yourself! Then, join us out on the message boards and help us look for better ways to screen, with better data and hopefully better returns.

Don't forget to join me on Thursday when I take a look at the Keystone Approach.

Take care.

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