A Market Runs Through It.

Fly fishing is addicting.  It’s more religion than a sport for many.   The attraction to fly fishing, in addition to catching the fish, is all the gear – rod, real, line, leaders, waders, snips and flies.

A River Runs Through It isn’t a fly fishing movie, per se, but it does show amazing scenes on the Blackfoot River.  If the fly fishing scenes in the movie don’t get you excited, nothing will.

The river I fish is nothing like the Blackfoot.  It’s a slow, meandering river. The water is dark and murky and I have no idea where the fish are hanging out.  I cast a lot and I’m forced to be patient.  I cast. I wait.  I cast. I wait.  On occasion I will pull a nice little fish out of the water.

What does fly fishing have to do with investing?   A lot.

My time on the water begins the evening before when I build my plan. Where to fish?  What rod to use?  What’s the best fly?  Planning is important.  It doesn’t matter if you’re fishing or investing a thoughtful plan will increase your chance of success.  Your plan will make both activities more enjoyable.

Investing, like fishing, requires persistence.  Persistence brings patience.  Patience gives you discipline.  Discipline will make you a better investor.  It would be nice to catch a 20-pound bass with every cast but I know it’s not likely to happen.  On most casts I come up with air and water.  It’s important to keep casting because the only way to catch a fish is if the fly is in the water.

The fly is half the fun in fly fishing.  Choosing the right fly is part of the challenge.  What fly to use –   popper, dragon fly, minnow, crawfish?  I’ve used them all at one point or another.  A diversified box of flies is a must because conditions change quickly.   The markets change quickly as well.  A diversified portfolio of stocks, bonds and cash will keep you ready for most market conditions.

A wind knot is not fun.  A tangled line is downtime.  When I’m confronted with a wind knot I have two choices.  I can untangle the knot or cut the line.  I’ve done both.   During my downtime I review my goals.  Should I keep fishing?  Am I in the right spot?  Do I need to add a heavier line?  When the market corrects and your portfolio is in a knot what do you do?  You can’t ignore a wind knot when fishing.  It has to be dealt with.  A market correction is the same.  It must not be ignored.  Use a correction to review your holdings and goals.

Hiking to the lake or river can be just as fun as fishing.   Investors seem to be in a hurry to arrive at their final destination.   Take time on your journey to enjoy the view.  Investing is a lifetime event.  It doesn’t start with your first job nor does it end with your last.  Investing is generational.

Planning, persistence and long term thinking are needed for fly fishing and investing.   If you practice these things, you’ll be hooked for life.

If fishing is a religion, fly fishing is the high church – Tom Brokaw

Bill Parrott is the President and CEO of Parrott Wealth Management, LLC.  www.parrottwealth.com.

4/19/2016

 

 

 

 

 

 

 

 

 

 

 

 

Are You a Control Freak?

Do you like to be in control?  Do you need specifics?  Do you have a hard time with delegation? Do you always have to be right?  I’m not a control freak but I like to have a say in the outcome.  I prefer driving to flying because I feel I’m in control even though I know flying is safer than driving.   When I board an airplane, I surrender control to the pilot and the laws of physics.   The pilot is well trained and the plane is well built but I’m not in the cockpit and it makes me a tad nervous.

Investors try to control their stock purchases by doing their homework and research on companies to buy.  Investors feel entitled for their stock to rise because they have spent hours (minutes) crunching numbers and doing channel checks.

A few years ago, a neighbor’s son purchased a few shares in a company he frequented.  After his purchase the earnings report was announced and the stock went down.  He was upset because he had done his homework and the store was always crowded.  A stock doesn’t know you own it and it could care less how much research you did prior to your purchase.

Investors also try to control the market through market timing.  Shareholders will move money in and out of stocks trying to find the optimal time to buy or sell.   Market timing is a waste of time.   The S&P 500 returned 9.2% from 1994 to 2013.  An investor who missed the 50 best days during this run ended up with a return of negative 2.8 percent (-2.8%).[1]

What can you control?  You can control how much you spend and how much you save.   The more you save and the less you spend will mean more money in your pocket.

You can control your emotions.  To make money in the stock market you need to control your emotions on the upside and downside.   When stocks rise, don’t get overly excited.  When stocks drop, don’t get overly depressed.   The stock market has been fluctuating longer than we’ve been alive.

Is it possible for you to change your narrative when stocks fall?  Investors are more concerned about the market dropping than rising.  It’s not fun to ride stocks through a correction.  Loss aversion is the definition given to people who prefer to avoid losses rather than generate gains.[2]  Can you change your cues or triggers during a market correction?   During a market drop investors want to know what’s wrong?   Rather than focusing on the drop or loss of value change your narrative and start looking for stocks or funds to purchase.

The best way to get rich in the stock market and create generational wealth is to buy when everybody else is selling.   When the market is going down investors sell great companies at disastrous prices giving you the opportunity to add to your holdings at rock bottom prices.

It takes time to change the narrative in your mind.   You must give up control and let the long-term forces of the stock market take over.

Let it go! ~ Elsa

The mind of man plans his way, But the Lord directs his steps. ~ Proverbs 16:9

Bill Parrott is the President and CEO of Parrott Wealth Management.  http://www.parrottwealth.com

Note:  Past performance is not a guarantee of future performance.  Your returns may be more or less than those posted in this blog.

[1] http://www.fa-mag.com/news/the-difficulty-and-costs-of-timing-the-market-22128.html, by Chris Meyer, June 15, 2015.

[2] http://loss-aversion.behaviouralfinance.net/, website accessed 1/17/17.