HOW HIGH IS YOUR EQ?
When I started in the investment business in 1980 the Dow was at 1,000. Now 40 years later the Dow is at 35,000. So if you had invested $100,000 in 1980 you would have $3.5 million today. The most amazing part is that this is only a 9.1% return. This is approximately the same rate of return the market has averaged for the last 100 years. Now this does include several hair-raising downturns where the index dropped 20%-50%. However, all you had to do was not panic and jump out at the wrong time and you made your $3.5 M. The broad-based economy is doing all the work. Investors get to come along for the ride.
So why are all long-term investors not rich? Most cannot handle the wild ride. To reverse an old saying, they snatch defeat from the jaws of victory. Too many investors sell out at the bottom because of fear, and buy in at the top because of elation. It is human nature; however, with practice the logical mind can learn to become stronger than the emotional heart.
Warren Buffet has done it. As one of the best active managers in history, Buffett says investors should do all the investment work, or none of it. No middle ground. Either way, the investor must be able to emotionally handle the bumps and bruises of the wild ride in the market. Buffett believes the market has been going up for 100 years and will continue to go up for another 100 years. The key is not a high IQ, an Intelligence Quotient, it is an emotional IQ, or an Emotional Quotient. Let’s coin that term an “EQ”.
Albert Einstein reportedly said: “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.” If we extrapolate the same 9.1% return, the compounding affect has the Dow reaching the 100,000 mark in only 13 more years. Is this a prediction? No, Equitas does not make predictions. It is the recognition of an economic inevitability that will happen sooner or later if we are all still here.
Will this happen in a straight line? Of course not. It never does. Will there be some bumps in the road? Of course. There always are. Will many investors be shaken out by their low EQ? Unfortunately, yes. The prerequisite is a belief and confidence that the economy will continue to grow, or even accelerate, into the future. Few investors have an EQ that can handle the full unbridled, unhedged, stock market volatility. The secret is adopting an investment strategy that is comfortable for you personally. A strategy where your wheels will not fall off because of the market volatility. A strategy where you can make money and still sleep at night.
In 2002 Equitas Capital Advisors, LLC was established as a unique company that blends the resources of a large global corporation with the flexibility of a small boutique firm. The registered service mark of Equitas Capital Advisors is Engineering Financial Solutions® and the purpose of Equitas is to design, build, and deliver investment solutions to meet the goals and objectives of our investors. Equitas Capital Advisors, LLC located in New Orleans, has over 200 years of combined investment management consulting experience providing professional investment management services to investors such as foundations, endowments, insurance companies, oil companies, universities, corporate retirement plans, and high net worth family offices.
Disclosures and Disclaimers:
Above information is for illustrative purposes only and has been obtained from reliable sources but no guarantee is made with regard to accuracy or completeness. It is not an offer to sell or solicitation to buy any security. The specific securities used are for illustrative purposes only and not a recommendation or solicitation to purchase or sell any individual security.
Equitas Capital Advisors, LLC is registered as an investment advisor with the U.S. Securities and Exchange Commission (“SEC”) and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the advisor has attained a particular level of skill or ability.
Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author on the date of publication and are subject to change. This publication does not involve the rendering of personalized investment advice.
Charts and references to returns do not represent the performance achieved by Equitas Capital Advisors, LLC, or any of its clients.
Asset allocation and diversification do not assure or guarantee better performance and cannot eliminate the risk of investment losses.
All investment strategies have the potential for profit or loss. There can be no assurances that an investor’s portfolio will match or outperform any particular benchmark. Past performance does not guarantee future investment success.