05.09.19 | A card deck and an investment philosophy

By Bryna Howes 05 September 2019 3 min read

A few years ago, during a particularly chaotic time in my life, I went to see a psychologist.

We ran through a number of exercises designed to help me pinpoint where I’d lost my way. One of these exercises involved a pack of cards, with a single value printed on each one.

Values are basic yet important beliefs that guide or motivate our attitudes and actions.

Each time he showed me a card, I’d say whether the value was a value of mine. If it was, it went into one pile. If it wasn’t, it went into another. At the end of the exercise, he picked up the “yes” pile and we ran through the exercise again, this time comparing one value to the next.

By the end of the exercise, we had narrowed down the five main values that guide me.

Here at Spaceship, we’ve run through a similar exercise. As a company, we have come up with a set of values that guide or motivate our attitudes and actions.

One of our values, put simply, is forward-thinking.

To expand on this, we believe in thinking in decades, not days.

And for us, this oozes into everything we do, including our investment philosophy.

At Spaceship, we believe when it comes to investing, it can pay to hang in there. We also know that can be easier said than done when the market is dropping.

But here’s the good news: We didn’t come up with this value — or our investment philosophy — using a pack of cards. On the contrary.

We used what history has taught us (noting, of course, that past performance is not always a reliable indicator of future performance).

For instance, on 2 January 2008, the first trading day that year, the Nasdaq closed at $48.23.

The next day the price dropped a little. And over the coming days it continued to drop. In fact, as the year progressed, cracks begin to show in the market. Following the collapse of Lehman Brothers in September 2008, it was clear there was a severe worldwide economic crisis. Some have since said it was the most serious financial crisis since the Great Depression.

Unsurprisingly, the Nasdaq was turbulent over the next few years. It wasn’t until 19 December 2014 — almost seven years later — that the Nasdaq closed above $48.23.

Fast forward to 2 January 2019, the Nasdaq closed at $81.

So, while you would have had every right to feel panicked within those first few years — it was a global financial crisis, after all — by sticking it out, it seems you would have fared okay.

For long-term investors, this equates to “time in the market,” not “timing the market.”

Celebrated investor Peter Lynch is a huge proponent of this philosophy.

Lynch was the manager of the Magellan Fund at Fidelity Investments from 1977 to 1990.

During this period, Lynch averaged an impressive 29.2% annual return, and it’s likely thanks in part to his readiness to hold for the long-term.

Lynch even conducted a study (using historical figures) in which he analysed the returns provided by the market over the 30-year period from 1965 to 1995.

He found if an investor had invested US$1,000 a year on the highest day of each year for the 30 years from 1965 to 1995, the investor would have earned a compounded return of 10.6%.

Now, if the investor had invested on the lowest day of each year for the same 30 year period, the investor would have earned a compounded return of 11.7%.

Yes, the first investor trailed by 1.1%, but as Lynch sees it, that extra 1.1% isn’t worth the effort of trying to anticipate or prepare for corrections and downturns.

Perhaps that’s because by trying to pull out of the market on a bad day, you could also end up missing out on a good day.

J.P. Morgan Asset Management’s 2019 Retirement Guide has some insight into this.

Over the 20-year period from 1 January 1999 to 31 December 2018, if you missed the ten best days in the stock market, your overall return was cut in half!

To be more specific, if you put US$10,000 into the S&P 500 Index, and remained fully invested over the entire period, you’d have ended up with US$29,845.

If you had missed the ten best days, you’d have ended up with US$14,895.

All this to say, it can sometimes be worthwhile to stick it out. It can be beneficial to think in decades, not days.

Speaking of values, one of mine — as I discovered via the card deck — is independence. I don’t like being told what to do; I like to make my own decisions in my own time.

So, everything I’ve said about our investment philosophy is said only to let you know about some of our experiences in the market.

You should absolutely make your own decisions about investing — decisions that make sense for your personal financial situation — and do so in your own time.

But I also hope the Spaceship value of forward-thinking speaks to you.

Words by
Bryna Howes Right Chevron

Bryna Howes is the Head of Content at Spaceship. She's equally obsessive about cinnamon donuts and scouring the web for great reads.

05.09.19 | A card deck and an investment philosophy