Is This The Rosetta Stone of Investing?

rosetta stone of investing money

Let me ask you…

What if there was one question that would have told you to get out of the market before both the 50% Dot Com fall in 2000 and the 58% Global Financial Crises fall in 2008?

And what if that same question also told you to get back into the market just months after both the 2000 and 2008 falls?

And just one more thought.

What if that one question was also able to filter out all the hype and fear-mongering?

I’m asking because I found something.

I found the question that determines 93% of a person’s investment performance. And if you get the answer to this question right, you get everything right. BUT if you get it wrong then it almost doesn’t matter what else you do.

So I challenged this question to work in every scenario I could think of.

And this article is about when it works, why it works, and when it doesn’t.

First we have Investment Camp #1.

We’ll call this camp the Buy-N-Hold, Big Box camp. This is when an investor’s money is always invested in the stock market – a camp where you ride out the hard times and take the full hit of every market correction.  

Then there’s Investment Camp #2.

This is the “pick of the month” newsletter camp – a camp where more picks more often is thought to be better than the buy and hold camp.

Here’s the thing…

99% of all investing strategies fall into one of these two camps (buy and hold or pick-of-the month). So it makes sense that most believe these are the only two choices when it comes to investing.

What most don’t know is that there’s actually a third camp. A camp where the stars shine brightly, the nights are quiet, and the days are relaxing.

That probably brings up a few questions, yeah?

Questions like:

  • What is this third camp?
  • If it’s so great, why don’t most investors know about it?
  • How do I find this camp?

We  call the bridge to the third camp The Rosetta Stone of Investing.

Why the reference to the Rosetta Stone?

Because the Rosetta Stone was the key to deciphering hieroglyphics. And before the discovery of that stone (1799) the world had no way of understanding them. 

Camp #1 and Camp #2 tell most investors that they know how to decipher hieroglyphics with their own “stone”… but the reality is that those stones are either broken or misleading.rosetta stone

The Two Most Populated Camps.

Camp #1 is the Long-only Big Box Adviser Camp.

This camp believes the best choice is to ALWAYS have your money in the market and NEVER take it out. Sure your account might lose 40%, 50%, 60% or even more, but this camp teaches you that the world of investing is so complex and complicated and random that the only choice is a long-only-never-get-out approach.

The marketing branch of camp #1 is the most powerful marketing branch of any fortune 500 sector. Their marketing budget is almost unlimited.

refugee camp

And most people just kind of end up here. It’s where the masses are moving. And when you’re younger it’s the easiest option. You don’t know why you are camping here – it’s just what everyone else is doing. And you notice, no one is really happy. They’re just sort of there because they don’t know what else to do.

How do you know if your money is in camp #1?

  1. Did you stay in the market in the ‘00 and/or ‘08 market fall?
  2. Do you have 10 or more positions right now?
  3. Does your money get rebalanced?

If you answered yes to two of the three questions above, then your money is most likely sitting in camp #1.

And then there’s camp #2… the supposed solution to camp #1.

Camp #2 is the “Pick of the Month” Newsletter Camp.

This camp believes the best choice for the you is to have 30 even 40 ticker symbols in your portfolio with new symbols being exchanged in and out each month.

refugee camp 2

This camp looks more organized. It feels more planned out. And there seem to be more “my type of people”, critical thinkers, people upset at the government, etc, here.

Still, it’s not really camping. It’s certainly not relaxing or calming.

How do you know if your money is in camp #2?

  1. If you’ve been too conservative worrying about an imminent market crash.
  2. If you subscribe to three or more investment newsletters.
  3. If your inbox is overflowing with stories about the next “facebook” of China.

The most glaring problem with camp #1 and #2 is they both teach you their own version of hieroglyphics (read: confusion, complexity and complication).

Though both camps claim to be polar opposites of each other they’re actually teaching the exact same thing, namely, “Investing is really complicated stuff…but we’ve got your back.”

Camp #3 is the Alignment to the Market Camp

This camp is harder to find. It’s a bit secluded — away from the noise and drama of camps one and two. In fact, it’s relaxing.

It actually takes a little getting used to. The first night is strange because there’s no noise… no stirring around, no sirens, no yelling, no hyping…. just calm.

The language is unique in the investment world because it’s so simple. The third camp notices the uncommon common sense.

This camp can be very off putting to the refugees of camp #1 and #2.

Three investment camps

How to Get to Camp #3…

Step #1:

Realize There’s No Such Thing As Setting Your Money Aside.

If you’ve earned money, then that money is already 100% fully invested in either: stocks, fixed income (bonds and cash), commodities or real estate. When people realize there is no such thing as setting money aside, they immediately get that they have already acted. And now they can ask, is this asset best for my money?

And when they understand step #1, they move from being on the receiving end of someone else’s marketing to asking, “what’s best for my future?”  

It’s a powerfully simple step.

four asset classes are stocks fixed income real estate and commodities

Step #2:

Stocks Win 78% Of The Time

Out of the four asset classes, stocks lead the other three assets higher 78% of the time. And if the investor reinvests their dividends when buying a simple stock index fund they immediately move themselves to the front of the performance line. 

Look below and see how this one powerfully simple step can change an investor’s life. The blue stack of returns is where the investor wants to start the conversation. Not end it. You’ll learn by step #3 why the investor wants to take the next three steps.  

Asset class results from 1980 to 2017

Step #3:

Do you know the one question that determines 93% of your performance?

This article is about how 93% of a person’s investment performance comes down to this one question.

The first and most important question an investor could ever ask themselves and know how to answer is:

#1: Should I be IN or OUT of the stock market?

The long-only never get out of the market approach is the cornerstone of the Big-box adviser world. And it works 78% of the time. But what to about that other 22% of the time?

That 22% is short on the time scale, but can be long on the potential devastation scale. Especially if the investor considers that some of the drops in that 22% of time can be 50%, 60% and even 70% in size. Yes the market always comes back. But does the investor really have to get crushed along with the market?

An investor’s stability, steadiness, and freedom is directly connected to avoiding those large losses. One of the keys to investing money is NOT finding huge wins. It’s avoiding big losses. This is what step #3 is about.

Step three is having the investor ask the question, “should I be in or out of the market?” Or asked differently, “Is this the 78% of time to be in…or is this that 22% to be out?

And when the investor knows where to find the answer to “in or out?” an investor’s life can change. Just look at the price chart below. The red line is the S&P500 with dividends reinvested. Which by the way beats 97% of ALL investors over any 7-year period

But look what happens when the investor asks one powerfully simple question. Again, the question is about avoiding the huge losses. The blue line below is the result of asking the “in or out” question. The answer to that one question could have grown an investor’s money to $29,500 instead of $21,000. That means the initial $10,000 on the blue line created an extra $19,500. While the red line only created an extra $11,000 from the same fictitious $10,000.

That means the investor’s money on the blue line created an an extra 77% more money! Just by asking one powerfully simple question. And that “blue line investor” only had to own one symbol. I know. This is seems too simple.

Beating the S&P500 with one question

Step #4:

Ask Just One More Question – “If IN, Then Where?”

The “pick of the month” newsletter camp believes the investor should own 30, 40 or even 50 ticker symbols. And if that wasn’t impossible enough, the pick of the month newsletter camp wants the investor to swap out or buy a new symbol at least once a month…if not more. This is insanity.

More ticker symbols mean worse performance

Step four is about asking one follow up question. This powerfully simple follow up question about the market is, “If IN the market, then where’s the best location to be invested?”

Note: there are only three locations to be invested on Planet Earth. (1) US Domestic, (2) International Developed and (3) International Emerging. That’s it. If the investor knows which of the three locations is leading the other two then the investor is able to safely and simply acceleration their money with stability.

After all, the safest place for an investor’s money is in the stable accelerating uptrend. And here’s one of the best parts, the best location usually has a time duration of years and not days, weeks, months or quarters. 

From $21,000 to $91,100 with 2 Questions

Let me put these two powerfully simple questions into perspective for the investor by comparing three performance numbers.

A. S&P 500 with Dividends Reinvested:
If an investor just buys the S&P 500 and reinvests their dividends (Step #2) and calls it a day, then that investor’s initial $10k would have generated an additional $11k.  Not bad for “doing nothing.” And yet, this would have put that investor in front of 97% of EVERY other investor on the planet over any 7-year period. Even Warren Buffet couldn’t beat the performance of this simple step. See the price chart below comparing Berkshire Hathaway’s stock performance to the S&P 500 with dividends reinvested since January 1st, 2003. 

Let that sink in.

Warren Buffet vs the S&P500 investing moneyB. Asking one powerfully simple question of the market.
By asking one powerfully simple question, “should I be IN or OUT?” the investor’s initial $10k would generate an additional $19,500.

That’s a 77% better performance than the buy and hold with dividends reinvested approach. Which if you remember beats 97% of everyone over any 7-year period.

That’s the power of asking the right question. And the best part is that there were only two times in that 17 years where the investor would have been fully out of the market because of asking this one powerfully simple question.  

C. Asking two powerfully simple questions of the market.
If the investor would have asked the “IN our OUT of the market” question AND asked one follow up question “if IN, then where?”  then that investor’s initial $10k invested would have generated another $81,100. Or an additional 737% gain over the buy and hold with dividends reinvested position.

Think about this. Same politics. Same weather. Same Congress. Same Senate. Same President. Same inflation rate. Same stock market. Same everything EXCEPT two powerfully simple questions.

investing money

It’s hard to grasp the difference between those three numbers and I’m not asking you to do that right now. The difference between them can almost sound silly or made up.  That initial $10,00 could have…

  1. Grown to $21,000 (and remember this one beats 97% of investors!)
  2. Grown to $29,500
  3. Grown to $91,100

So, please take a giant step back and let me call out a few things for you.

Behavior Matters

I’m not saying the investor would of have had the behavior chops to actually take action. I’m not saying the investor would have put all of his money in the index while the market was in that 78% stable uptrend. I’m not saying the investor would have taken his money out of the market when question one said to get it out. And I’m not even saying the investor would have asked both questions.

I’m not saying any of that. Heck…maybe the investor was in an annuity. Or maybe the investor would have had to pay taxes when he took his money out. Or maybe the investor would have had to pay trading commissions. Or maybe the investor had been shamed over the past 30 years by camp #1 and #2 to only think their way.

There are many scenarios.

Though I will say this, trading commissions are free today (Robinhood). 40% of all invested assets are in tax-sheltered accounts (IRAs, Roths, SEPs, 401(k)’s, Annuities). And there were only two times in the past 17 years that the two questions had an investor’s money fully out of the market.

What I am saying is, there’s a third camp. A camp that is built on a simply powerful approach of doing just what is necessarily. Camp #3 believes the investor should just focus on those one or two things that determines 93% of your investment performance.

The pick of the month newsletter camp has gotten it wrong for the investor. The answer is not in the 30 ticker symbols about the next “Facebook of China.” The answer is in understanding what 7% percent of actions produce the other 93% of gains.

Step #5:

Partnerships Matter

There’d be no HP without Hewlett and Packard. There’d be no Microsoft without Allen and Gates. There’d be no Apple without Jobs and Wozniak. There’d be no Google without Page and Brin. There’d be no Ben & Jerry’s without… wait for it Ben Cohen and Jerry Greenfield. There’d be no Beatles without McCartney and Lennon. There’d be no Stars Wars without Han Solo and Chewbacca.

You got to have the right partnership.

Working in splendid isolation is not how greatness happens. Whether that’s music, business or ice cream. Finding the right partnership is part of the magic. It’s the one differences that makes the difference for greatness to happen. If you’d like the map to this side of the river you can find it here for free. 

McCartney and Lennon

The Bridge:

5 Powerfully Simple Steps to Investing Money

If the investor takes all five steps he builds the bridge and gets to the other side of the river. The other side of the river already exists. And it’s that side that the investor is looking for when they leave the long-only Big Box camp and join the “pick of the month” camp. It wasn’t the investor’s fault. No one had told them there was a powerfully simple way.

What happens to most investors is they end up in the complexity of investing money with all their ticker symbols, newsletters and trading services.

What that investor wants is economic stability. And no one has told them its not found in narrative-based investment research.

What the investor is looking for is “elegant simplicity” the type of simplicity you get after someone has gone through the chaos, confusion and complexity.

simplicity vs. complexity

And when the investor is able to step above the noise and say, there must be a better way, they start to find themselves looking for the bridge to the other side. A side with fewer people. A side with almost no noise pollution.

Stable camp

Take the steps that determine 93% of your investment performance and see what camp three can do for your life. The entire goal of camp three with those two powerfully simple questions is to align your money to the market. When the investor does that they get HP. Ben & Jerry’s. Apple. Google. Star Wars. And the Beatles.

Let it be okay to notice camp #3.

Good camping.

In Your Corner,

RCPeck-Dig Signature.JPG     
RC Peck, CFP

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