This Week’s Message: To be successful at investing, imitate The Great One. And I don’t mean Warren Buffett

Yesterday evening I found myself in deep discussion with a gentleman who, among other things, builds basketball courts. Other than his stated belief that his company is “the Rolls Royce” — as opposed to “the Volkswagen” — of court construction, I found him to be generally humble. He told me about a man he once worked for, when he was learning the demolition business (he later founded his own such business), who acted as if he was the inventor of everything having to do with structure destruction. While sharing his story, he chuckled, and said “I wonder how people knocked stuff down a hundred years ago without this genius telling them how to do it”. His boss’s bravado aside, he admitted that he indeed learned a great deal by watching the man work.

When you’ve done a thing for a very long time you either come to believe that you are the master of that thing — or, that thing is so dynamic and, therefore, unpredictable that you come to believe that it masters you (in which case you must leave that thing) — or, that thing is so dynamic and unpredictable that you surrender to it and learn how to successfully ride its waves. I suppose the worst (and most dangerous) of all scenarios would be that the thing is dynamic and unpredictable and you nonetheless believe that you’ve mastered it — no can do when we’re talking the dynamic and unpredictable financial markets.

“They” say that if you want to be successful at a thing, find folks who are already successful at it and imitate them. Okay, maybe in some things — maybe the demolition business — that makes sense, however, when it comes to the financial markets it absolutely does not! I mean, go ahead, imitate Warren Buffett. Surely you’ll become one of the richest blokes on the planet. Sorry, it just doesn’t work that way! Of course you know this already, right? I mean, there’s no doubt been millions of Buffett imitators, yet you can only point to one Buffett.

Ah, but let’s not abandon the whole imitation notion altogether — I suggested that imitating already successful investors does not lead to investment success. However, if, in our investment pursuits, we, say, imitate successful hockey players, perhaps we can become successful after all.

Wayne Gretzky says he skated to where the puck was going to be, not to where it was. So, was he like the Wall Street prognosticators — pretending to know the unknowable — whom I bash herein at every opportunity? No, not in the least! The Great One wasn’t pulling puck prognostications out of his helmet, he was simply seeing the direction in which the puck was already heading, then meeting up with the trend.

And therein lies the key to long-term investment success. It’s not sexy, it’s not overly complex, it does not require a PhD in economics or astrophysics — it’s simply the assessing of trends; be they price trends in the markets, be they demographic, economic and business trends among the regions of the global economy, be they trends in investor, consumer and business sentiment, etc. — and proceeding accordingly.

Speaking of price trends, here’s a 5-yr look at the S&P 500 along with its 50-day moving average (dma). The trend has essentially been a riding of the 50 dma fairly closely, testing it every now and again (as it did recently), struggling with the previous high (read consolidating gains), then resuming its march higher.

The above, along with all of the price trend analysis we’ve been reviewing on the weekly videos, says — for now — stay the course, while expecting plenty of volatility in the process.

Going forward: Today’s less than stellar Q1 U.S. GDP report gives us a good excuse to take a break herein from the price charts and to take a look at the prevailing global economic trends in the next few blog posts.

Have a great weekend!
Marty

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