The Great One

You always miss 100% of the shots you don’t take.

This famous Wayne Gretzky quote rings true with Einstein’s definition of insanity: doing the same thing over and over and expecting a different result.

As an investor, if you invest your money just like everyone else does, the only results you will ever get are the same ones everyone else gets… you will never give yourself a chance to outperform or really move the needle in a meaningful way. Worse yet, what if everyone else is wrong? Will you feel better about your results because everyone else is going through the same thing?

Every investor has to answer this question, “In trying to be right, are you willing to bear the inescapable risk of being wrong?” Gretzky had to answer the question, “Am I willing to take a shot that might miss?” Think about it. If Wayne Gretzky only shot at open nets his career would have turned out much differently… in fact, he probably would have never had one to begin with. Said plainly, if you never shoot you will never score.

Now consider this wrinkle to the reality for all investors today: Thanks to the Fed, there is really no such thing as an “open net” of investing anymore. Back in 2007 (before zero interest rates were being pursued) an investor could take what was considered the “risk-free return” by using something like a 1 yr CD or a 2 yr treasury (both paid around 5%). Now those same tools pay .25% at best.

It’s important to remember that the concept of compound interest is great when it is working for you (investment returns) and it is equally bad when working against you (inflation). Consider that at 3.5% inflation, the value of money would be cut in half after 20 years… And most people don’t consider 3.5% as a big scary number, yet it can do some pretty damaging things when it is persistent over time.

Here is the bottom line… if you only want to shoot at an open net as an investor, the only thing you are guaranteeing yourself is negative real returns (investment return after considering the rate of inflation). Of course, some investors with short-term time horizons are okay with that (in exchange for not subjecting their capital to market risks) but most others are not.

Are you ready to take a shot?

Categorized in: Blog

This post was written by Conscient Capital