27 Nov Don't Follow The Herd!
Image: My beautiful boy, Vasco
“We have met the enemy and he is us.”
When I’m not working, my greatest passion in life is working with my horse, Vasco.
Vasco is a Lusitano – a noble Portuguese breed, originally bred for war, then bull fighting and latterly classical riding (dressage – yes the ‘dancing horses’ we all came to love in the London 2012 Olympics). They are highly sensitive, incredibly intelligent, unbelievably beautiful to watch in action and a joy and privilege to own (Vasco used to do ‘spectacles’ in France with his previous owner and ‘Sit’ is one of his tricks!).
Horses are flight animals. Their natural reaction to any situation in which they feel threatened, or uncomfortable, is to run away and – if they have one – it is the herd to which they will run. To their minds, there’s a lion waiting just out of sight that wants to eat them. ALWAYS.
A horse that is bred for war or bull fighting must be brave and has to learn to overcome that natural flight instinct. They have to ignore their most basic impulse – to seek out the safety of the herd – and instead stand their ground and face up to the threat. This takes years of training and, ultimately, can only be achieved if the horse truly trusts his rider. He has to believe implicitly that his rider will keep him safe and not let him come to any harm.
“What’s this got to do with planning or investing”, I hear you ask? Well, just like horses, investors also believe in the safety of the herd. Our natural instinct is to follow the herd – to sell when everyone else is selling, to buy when euphoria rules and everyone is piling into the market. But while in many situations in life seeking the safety of the herd is a pretty good choice, it is the absolute worst thing you can do as an investor.
(Reproduced with kind permission of Carl Richards – www.behaviourgap.com)
For a successful investment experience, it is essential that you avoid the herd mentality, or as Warren Buffett put it, ‘Be greedy when others are fearful and fearful when others are greedy’. In other words, stick to your guns and maintain your chosen asset allocation. In practice that means having a proper strategy in place, where your investments are allocated in line with your risk profile and your goals – your investment ‘why’.
We have put in place a well thought out, evidence-based and robust investment process, which is thoroughly documented, both in our internal investment process documents and also in readily accessible form. Believing in the approach allows you to stand firm when the market storms hit from time to time, as they inevitably will. Our clients have weathered previous storms and they know what it is like to own the right portfolio. They trust us to keep them on track, and stick to their plan because we are with them every step of the way.
As Peter Lynch, one of the most successful investors of his time as a fund manager once said,
‘The key to making money in stocks is not to get scared out of them.’
When markets wobble, don’t follow the herd. Be like Vasco – stand your ground and face up to the threat.