VALUE: After Hours (S07 E35): How to Stick With Your Investing Strategy When It Gets Hard

During their recent episode, Taylor and Carlisle were joined by Justin Carbonneau, Jack Forehand, and Matt Zeigler. They discussed: How to Stick With Your Investing Strategy When It Gets Hard.

Anyway, so, Ben’s lesson was a good strategy you can stick with is better than a great one you can’t. And then, he went on to say, and I’m paraphrasing here, “There’s probably no perfect way to save and invest. You just have to pick a strategy and stick with it come hell or high water. The good strategy you can stick with is vastly superior to a great strategy you can’t stick with. If you find a strategy that works for you, don’t worry, everyone else is doing it.”

Jake: Toby, how’s that going so far?

Justin: [laughs]

Tobias: Well, I like the idea. I think it’s a great idea. It hasn’t worked for me, but [Jake chuckles] I like it.

Jake: I’ve seen what you do for other people than I want. [chuckles]

Jack: This does apply to value investing a lot though, because– I’m a huge fan of value investing too. But it’s not the right strategy for a lot of people because of the volatility of it. I put a lot of clients early in my career in these focused value strategies, and the number of people that can stick with those is not huge. So, it relates to the whole value investing thing.

Tobias: Do you think it’s a value versus momentum? There are people who just want to see that their stocks have been going up. They don’t want to buy them if they haven’t been going up. They want them while they’re going up. When they stop coming up, they don’t want them anymore. And there’s nothing wrong with that. That’s a strategy that it’s got some pretty good quantitative backing.

I’m contrarian. I want to bargain. But some people want the stocks going up. Is that the main distinction, do you think?

Justin: I think it might have to do with maybe how– When you’re looking at finding a strategy– People obviously go– The first place they probably go is performance. And so, yeah, if you’re looking at trailing like returns over last year and you’re looking at the top stuff, that’s going to be the momentum stuff no matter what part of the market the momentum is coming from, that’s going to be the best performing stuff.

But maybe the key there is, is if you have a strategy that has, let’s say over the past year, even three years, a 20% annualized return versus a strategy that has a 12% annualized return, but the 20% annualized return has a crazy standard deviation of 30% a year, that’s not a strategy that most people can stick with. My big takeaway is, sometimes you’re better off with just finding a strategy that fits with your risk tolerance than trying to chase the best performing one. By the way, I was thinking about past examples, and you, guys, remember the CGM Focus fund with, I think it was Ken Heebner?

Tobias: Yeah. Yeah.

Justin: That was the best performing fund from 2000 to maybe end of 2007 or something like that. But the annualized return might have been something like, I don’t know– Don’t quote me on this, but something like 16% or 17% per year in what was effectively almost the lost decade for stocks, but yet the volatility of that was so significant that no investors could really hang in there, and everyone was piling in after the periods of good performance.

Tobias: The average investor lost money in it. The average investor lost 11% a year.

Jake: 13 positive and negative 10 for the average investor.

Justin: Oh, wow. Yeah.

Tobias: Which is not something that he can control. It’s not something that the manager can control. Like, you get what you get. But it’s one of the things that– I’ve heard Cliff Asness refer to value as streaky. So, it seems to like it works in short bursts right when you think it’s not going to work, and then everybody piles in and stops working. It’s been my experience anyway.

[laughter]

Tobias: Must be due for some working, because it hasn’t worked for a while, 10 years something like that.

Jake: It was counting.

Tobias: Do you want to try the next one?

Justin: Sure. Jack, you want to go?

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