What happens when investors believe losing is unthinkable?
Whether or not you’re a die-hard NFL fan, you can appreciate the story of Trevor Lawrence. He became the starting quarterback of his high school team as a sophomore, and then led them to 41 straight victories and three state championships.1 In his freshman year at Clemson University he led his team to an undefeated season and the national championship. His first loss as a quarterback came at the end of his college sophomore season in his return to the national championship. He would lose only one more time as a collegian, again in the playoffs.
Opting not to play his senior year, Lawrence was chosen number one in the NFL draft by the Jacksonville Jaguars. The team had earned the right of first choice with their dismal 1 win and 15 loss record for the previous season. But they had reason to hope. Not only were they getting a winning quarterback, but they also hired one of the most successful head coaches in the history of college football. Urban Meyer had been remarkably successful at four different major schools.2
However, so-called sure-fire winning formulas often have a way of not working out.
In the first five games of his rookie season, Lawrence more than doubled the number of losses he’d experienced in the first six years of his career. The Jaguars went on to win just 3 of their 17 games. And at the end of the season an obviously matured Lawrence said that he still loved football, even with its ups and downs, adding that he didn’t need success on the field to have worth as a person.3
It’s tough to lose after you’ve only known winning. And a similar reckoning has arrived for many investors (especially younger ones) who have never experienced anything but a rising market. In recent years many were not satisfied with the double-digit gains of the indexes and instead chased “real” gains in tech enabled instruments like cryptocurrency and NFTs, and gamified stock trading platforms like Robinhood.4
One of the problems with trading only during a bull market is that you start to believe your success is due to your own skill. Hersh Shefrin, an economist specializing in behavioral finance, says that everyone feels smart when they’re making money.
But it’s the inevitable down markets that are the true test of your discipline and resolve.
”It takes a bear market and the experience of losses for us to start to distinguish between our own luck and skill,” says Michael Kitces, head of planning strategy at Buckingham Wealth Partners.
While everyone likes to back winners (both in football and investing), it’s actually the people without the winning record who may be showing the most character. When you discipline yourself and put in the work and still don’t come out ahead, it’s tempting to quit.
But if you keep doing the right things, behaving like you expect to win, you can be in a better position to succeed when the opportunity comes. This is true in sports and when investing for the long-term.
If you ever have any questions about your investments or retirement plans, please feel free to give me a call at 801-545-0696.
Regards,
Mark Lund
Stonecreek Wealth Advisors, Inc.
11576 S State Street, Bldg. 1002
Draper, UT 84020
1. http://go.pardot.com/e/91522/wiki-Trevor-Lawrence/7j4vhn/1583736565?h=DcjhS9a9nK6yk3_HVz5CyL7Dpv8YKwFqnK_hgEJ7zkI 2. http://go.pardot.com/e/91522/wiki-Urban-Meyer/7j4vhr/1583736565?h=DcjhS9a9nK6yk3_HVz5CyL7Dpv8YKwFqnK_hgEJ7zkI 3. http://go.pardot.com/e/91522/onds-critics-football-priority/7j4vhv/1583736565?h=DcjhS9a9nK6yk3_HVz5CyL7Dpv8YKwFqnK_hgEJ7zkI 4. http://go.pardot.com/e/91522/ver-traded-through-a-downturn-/7j4vhy/1583736565?h=DcjhS9a9nK6yk3_HVz5CyL7Dpv8YKwFqnK_hgEJ7zkI Disclosure: This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This material was prepared by Efficient Advisors, LLC (“EA’) for Mark Lund, Mark is known as a Wealth Advisor, The 401k Advisor, Investor Coach, Financial Advisor, Financial Planner, Investment Advisor and author of The Effective Investor. Mark offers investment advisory services through Stonecreek Wealth Advisors, Inc. a fiduciary, independent, fee-only, Registered Investment Advisor firm providing investment and retirement planning for individuals and 401k consulting for small businesses. Mark’s newsletter is called The Fiduciary Report. Cities served in Utah are: Salt Lake County, Utah County, Park City, Salt Lake City, Murray, West Jordan, Sandy, Draper, South Jordan, Provo, Orem, Lehi, Highland, Alpine, American Fork. The views expressed herein are exclusively those of Efficient Advisors, LLC (‘EA’), and are not meant as investment advice and are subject to change. All charts and graphs are presented for informational and analytical purposes only. No chart or graph is intended to be used as a guide to investing. EA portfolios may contain specific securities that have been mentioned herein. EA makes no claim as to the suitability of these securities. Past performance is not a guarantee of future performance. Information contained herein is derived from sources we believe to be reliable, however, we do not represent that this information is complete or accurate and it should not be relied upon as such. All opinions expressed herein are subject to change without notice. This information is prepared for general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. You should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. You should note that security values may fluctuate and that each security’s price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Investing in any security involves certain systematic risks including, but not limited to, market risk, interest-rate risk, inflation risk, and event risk. These risks are in addition to any unsystematic risks associated with particular investment styles or strategies.
