I know that this is not a new idea; we have all heard the story of the tortoise and the hare since we were little. Slow and steady always wins the race, but it is so easy to forget when most of what we read in the financial press is written to sell magazines: slow and steady does not sell magazines.
Having seen the damage that is caused by always looking for the next hot investment, I have been really interested in this idea of slow and steady investing. I love the term Slow Capital that I first heard from Fred Wilson; I would also add Steady. Slow and Steady Capital comes as close as possible to describing my ideal investment process.
[1] Slow & Steady Capital is far more concerned with avoiding the large losses than with chasing the next great investment. Being slow & steady means that you are willing to exchange the opportunity of making a killing for the assurance of never getting killed.
[2] Slow & Steady Capital recognizes that if two people start with exactly the same amount of money, it is not always the person with the higher annual rate of return that has the most money at the end. That’s right: a slow & steady return often beats a fast & crazy return. Think of the implications of that statement. Let’s say you were told what the average annual rate of return would be for two different investments for the next 10 years. You would think that it would be simple: pick the higher one. What I’m telling you is that it’s not that simple. Sometimes you end up with more money with the investment that has the lower rate return if it is steady compared to the other.
[3] Slow & Steady Capital means you can have a life. If you accept the fact that slow & steady wins the race, and you find a way to invest that way, you can turn off all the noise of Wall Street. A client of mine in emergency medicine used to tell me all time that he never knew whether to laugh or cry when he would go run in the mountains behind the hospital during his lunch break while all the other physicians were huddled around CNBC like Jim Cramer was about to reveal the secret to endless wealth. Slow & Steady Capital allows you to ignore that noise and enjoy your life.
[4] Slow & Steady Capital knows that the goal of investing is to have the capital you need to fund your most important goals. If your goal is to have something to talk about at the next neighborhood party, try something else.
[5] Being Slow & Steady is hard because it always seems that someone is getting rich quick. I had a conversation recently with a client-to-be that told me that he had done pretty well with an aggressive trading strategy. Now, I have heard that enough times over the years to know that we all have selective and short-term memories. Sometimes it only takes a few winning trades for someone to forget the losers. That was the case here. After talking about it for while, we discovered that in just the last few months things had gone well and it was on a much smaller capital base because the client-to-be had lost around 50% in 2008. So if you decide to be slow & steady remember to take all stories of people getting rich quick with a huge grain of salt.
Slow & Steady Capital: Short-term boring, long-term exciting.
