Consistency is Key When Investing

by | Nov 19, 2014 | Podcasts, Investor Behavior

Being consistent is a critical concept we must learn during life. Setting his recent and questionable financial advice aside, Tony Robbins has said that, “It’s not what we do once in a while that shapes our lives. It’s what we do consistently”. This is 100% accurate. Sadly the same cannot be said for his “All Weather portfolio”, but that’s for another time. On this week’s Mullooly Asset Management podcast Tom and Brendan discuss consistency as it relates to investing.

We read an excellent article this week written by Michael Batnick. Michael is the Director of Research for Ritholtz Wealth Management. At the end of the post we’ll link to Michael’s article titled “It’s Investor Behavior, Not Investment Behavior That Matters”, we recommend taking a few mintues to read it.

Michael looked at several “smart beta” strategies for his study. He selected five smart beta ETF’s to represent the factors of dividend achievers, equal weight, buyback achievers, momentum, and low volatility.

Each of these different investing factors has outperformed the S&P 500 from 2007 through today. What has underperformed the S&P 500 by a considerable margin is buying last year’s top performing strategy. For example, 2011 ends and low volatility was the best investing factor. You want to use the best strategy so you hop on board for 2012. Guess what? You underperformed the S&P 500 by 6.7%. Michael made an excellent quilt chart (picture below) to visually represent this.

Michael Batnick's Investing Consistency Quilt Chart

Michael’s quilt chart shows there are different top performers each year, but over time they all outperform the S&P 500:

What’s the message we can learn from this example? Consistency is key! Finding a strategy to outperform the market every week, month, or year isn’t possible, even if you want it to be. It is possible to implement a strategy that will outperform over time. To quote Michael Batnick:

“The key is to find a strategy that you can live with; something that meshes with your investing DNA. Jumping from strategy to strategy is guaranteed to lead to poor returns.”

Find a method that works for you, don’t deviate from it, and give it time. No matter what “smart beta” factor you choose, if you can commit to consistency you’re likely to see results over time.


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