You’ve probably heard this quote in one form or another:
“Losers let things happen. Winners make things happen.”
Nobody knows who first said it. My guess is a high school football coach.
But I think it describes perfectly what it takes to be a successful businessperson. I don’t mean a slick-talking, Don Draper type. I’m talking about a hustler who gets his hands dirty to build his company from the ground up. A guy who’s the opposite of lazy. If there’s a problem, he fixes it. If he’s unhappy with something, he changes it.
Basically, a great businessperson molds reality to fit his inner vision. He makes things happen, just like the quote says.
And that’s precisely why he tends to be a poor investor.
You can’t make things happen in markets. The market freight train is gonna go where it’s gonna go. You can either hop aboard, stand aside, or get run over.
Most of the nonprofessional investors I know have a businessperson’s mentality. When something in the market doesn’t make sense, they’ll try to “fix it” by betting against it. They see biotech, up a mind-numbing 196% in three years, and think, “Pfft! Obvious bubble. These buyers must be idiots. I’ll get short and just wait for the pop.”
Okay, agreed that biotech is obscenely expensive. No doubt about it. But guess what? It was expensive a year ago, too (as Janet Yellen pointed out). And it’s climbed another 44% since then. The biotech buyers fueling that rally may very well be idiots. But if there are more of them than you—and right now, there definitely are—betting against them will lose you money.
Interest rates are another example. We’ve been recommending long US government bonds (via the ETF TLT) in The Casey Report. We’re sitting on a decent 10% gain, but a lot of people are just dead set against the trade. They point out that interest rates are at historic lows, and when the trend reverses, it will murder anyone sitting on long bonds.
No argument here. I’m a huge bond bear. Though I do like US bonds as a near-term trade because they’re far cheaper than the bonds of four of the five PIIGS (remember them?), which is pure insanity.
But the fact is that bonds are in a 35-year uptrend. If you’re shorting bonds, you’re basically betting that you can call the top. And accurately calling the top of a 35-year trend is… challenging. I mean, you could be early by just 5%—which amounts to a pretty darn accurate forecast—and you’d still be off by 21 months.
Then you’d have to have the cojones to hold on to a losing trade for 21 months while waiting for your thesis to play out. That sounds miserable. Going with a trend is so much easier. Besides, in the investment business, we have a term for being 21 months early. It’s called “being wrong.”
I speak from experience here. I shorted bonds about two years ago. Needless to say, it didn’t go so well. Thankfully, I was at least smart enough to use put options, so my risk was capped. But I still lost money because I tried to make something happen. Lesson learned.
When you see crazy, illogical rallies like biotech or bonds, don’t fight ’em. Let ’em happen. Put your money to work somewhere else. That’s what good investors do.
If I could rewrite the beginning quote for investors, it would read:
“Bad investors try to make things happen. Good investors let things happen and take advantage of them.”
Thanks for reading. As a shameless self-promotion: I write a monthly investment article for The Casey Report. You can try it risk-free by clicking here.