Discipline and Spain travelogue

My wife and I are in the midst of enjoying our first trip in Spain, as well as our first trip to Europe.  See pictures below.

On the plane here and between cities, I read a lengthy white paper** by a fund manager whose investing style is causing their firm’s “liquid alternative mutual funds” to be currently underperforming most US and International asset classes. Note….we have not recommended or are invested in these funds.

As part of his discussion (23 pages), a quote stood out to me.

“There are two pains in life: there’s the pain of discipline, and then there’s the pain of regret. You choose which one.”

The quote appears to originate from a power weight lifter, not an investment professional.

As a weight lifter, I assume the athlete is saying the regular pain of his or her disciplined exercise regimen must be endured in order to succeed. If the athlete is not disciplined or does not feel the pain, they will not be successful and thus face performance regret.

This is also true with investing.  To be successful, we must be disciplined.

In regards to our firm’s investment strategy, we intentionally design your portfolio to be quite different than the major US benchmark, the S & P 500, which is comprised of 500 US based companies, which change over time.

We design your portfolio to be different than this benchmark with the expectation that you will have greater expected future returns and also have a smoother, better long term investment experience.

However, in order to accomplish these goals, we as your advisor and you as our clients will have to endure periods of “pain” when our disciplined approach may not perform as well as other benchmarks.

We recommend a portfolio that tilts towards more small and value stocks than the S & P 500, as well as include global diversification to our clients’ portfolios.

We add these components based on strong academic evidence that these premiums exist, over the long term, to add small, value and International stocks to a US large stock portfolio. By doing so, you must be disciplined to reap the greater expected future returns.

While this may be true over the long term, just like the weight lifter, there are times when we feel the pain, as these strategies and components may not perform as well as a non-diversified or US large only portfolio. At times, your portfolio may grow, but not as much as the S&P 500. During other periods, your portfolio may decrease in value while the S & P 500 is increasing.

This is when the pain is felt. This is when we will talk to you about remaining disciplined for the long-term, as we feel strongly that the academic evidence still supports these concepts. We may each feel regret, for the opportunity cost of not following other strategies (going with the herd). However, we know that remaining disciplined may be painful in the short term, it has proven to be rewarding in the past and we expect this to continue in the future.

We cannot know in advance when these strategies or premiums will occur. Many times they are unexpected and quickly rewarding, such as with US small company value stocks in late 2016. Other times, investing globally has been very rewarding after trailing US stocks for many years.

So, remain disciplined. At times it may be challenging. 

In the long run, we expect it to be rewarding.

I’ve also included a few pictures from our trip to Spain.

The first is La Sagrada Familia, an unfinished Roman Catholic Cathedral in Barcelona, Spain, designed by famed architect Antonio Gaudi, who worked on this project from the late 1880s until his death in 1926. After decades of no work on this complex through the 1950s, it expected to be completed in approximately 10 years. It was well worth seeing and will be even more incredible when completed.


The second picture is my wife and I after an evening of pinxtos, which is small portions of food enjoyed at bars or small restaurants in the Basque, or northern part of Spain. We were in San Sebastián and had a guided tour of great pinxtos restaurants. We could not believe the crowds in the streets and bars on a Monday evening in this relatively small town!










**Liquid Alt Ragnarok? by Cliff Asness, 09/07/2018 www.AQR.com/insights/Perspectives



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