Let the Trend Be Your Friend?
In 1975, John T. Molloy authored Dress for Success, a book on how the clothes we wear affect our success, both professionally and personally. It was widely regarded as a must-have guide for men looking to improve their stature in corporate America. Unfortunately, the suggestions have not stood the test of time, and in fact, were more timely than timeless. For example, Molloy says “In general, I have found that people believe that a man in a bow tie will steal.” Don’t tell that to the young men I have seen on TV and here locally who have built wonderful businesses selling bow ties…either their clientele are all thieves or Molloy’s advice is irrelevant. I’m certain it’s the latter.
Wall Street is notorious for suggesting “fashionable” ideas or products as well. And just like clothes, these suggestions will most likely be out of style in a year or at least during the next bear market when stock-like investments behave like stocks.
Instead of embracing recent trends or searching for the next “sure” thing, remember these salient truths about investing:
After determining why, the most important question any investor should ask is how much to split between stocks and bonds. Stocks are the best way to protect against inflation and bonds are the best way to protect against short-term losses. Most of us need a mix of both to navigate different environments in order to reach our goals.
Broad diversification, which seems to never be in style, may not necessarily be a free-lunch in the capital markets, but it’s still the cheapest meal you can find. A recent study comparing individual stocks with the overall stock market showed that the typical stock did not outperform treasury bills between 1926 and 2005; however, the overall stock market most certainly trounced not only treasury bills but treasury bonds as well.
Within the equity markets, an investor would have had better long-term returns by focusing on 3 areas: favoring value stocks over growth stocks, small stocks over large stocks and profitable stocks over less-profitable ones.
When it comes to bonds, duration (the time it takes to get your money back) and credit (the quality of the bond) are all that matter. Everything else is trivial.
Amusingly, Molloy also suggested “The response to facial hair is almost always negative in corporate situations, and the only men who should wear it are those men who must compensate for some other weakness in their appearance or personality.” Apparently, Molloy would not have been a fan of no-shave November. Don’t get caught up in trendy advice in fashion or finance. Instead, stick with solid foundations that have stood the test of time.