TAILS, YOU WIN!

What if you could be wrong half the time and still make a fortune?

Steamboat Willie put Walt Disney on the map as an animator. Business success was another story. Disney’s first studio went bankrupt. His films were monstrously expensive to produce, and financed at outrageous terms. By the mid 1930s Disney had produced more than 400 cartoons. Most of them were short, most of them were beloved by viewers, and most of them lost a fortune.

Snow White and the Seven Dwarfs changed everything. The $8 million it earned in the first 6 months of 1938 was an order of magnitude higher than anything the company earned previously. It transformed Disney Studios. All company debts were paid off. Key employees got retention bonuses. The company purchased a new state of the art studio in Burbank, where it remains today. By 1938 he had produced several hundred hours of
film. But in business terms, the 83 minutes of Snow White were all that mattered.

The idea that a few things account for most results is not just true for companies in your portfolios, its also an important part of your behaviour as an investor.

Most financial advice is about today. What should you do right now, and what stocks look like good buys today?

But most of the time today is not that important. Over the course of your lifetime as an investor the decisions you make today or tomorrow or next week will not matter nearly as much as what you do during the small number of days, likely 1% of the time or less,  when everyone else around you is going crazy.

Consider what would happen if you saved $1 every month from 1900 to 2019.

You could invest that $1 into the stock market every month, rain or shine. It doesn’t matter if economists are screaming about a looming recession or new bear market. You just keep investing. Lets call the investor who does this Sue.

But maybe investing during a recession is too scary. So perhaps you invest your $1 when the economy is not in a recession, sell everything when its in a recession and save your monthly dollar in cash and invest everything back into the market when the recession ends. We’ll call this investor Jim.

Or perhaps it takes a few months for a recession to scare you out, and then it takes a while to regain confidence before you get back into the market. You invest $1 into the market when there’s no recession, sell 6 months after a recession begins, and invest back in 6 months after a recession ends. We’ll call you Tom.

How much money would these 3 investors end up with?

Sue ends up with $435,551
Jim ends up with $257,386
Tom ends up with $234,476
Sue wins by a mile.

To give a more recent example: How you behaved as an investor during a few months in late 2008 and early 2009 will likely have more impact on your lifetime returns than everything you did from 2000-2008.

There will always be reasons to not invest – this will never go away during our lifetime. When you come to peace with this and realize that staying invested is the only way to build true wealth - you acknowledge that staying the course is what drives your investment success. 

A good definition of an investing genius is the man or woman who can do the average thing when all those around them are going crazy.

There will be another period where everyone around you is telling you to panic, sell everything, a recession is all but guaranteed, or so they say. I don’t know when this will happen, I will never claim so. But I do know what I will be doing during this time of panic.

I will be doing the exact same thing I advise my clients to do; keep calm and carry on. I will continue to invest every month, just as if the economy was reaching new highs. All the while picking up the incredible quality companies we already own, at a 10% or even 20% sale.

It’s what you do during these small moments in time, that truly shape your success.

Tails drives everything.