Equity investing is a discipline with attendant quirks and can be occupationally hassling. Giving your very best doesn’t assure you of immediate outcomes. There are times when the best effort stays dormant without showing up anywhere. Investments in equity have a habit of hibernating. One simply has to dig in just to the right depth of his capital as his risk appetite permits. And, after burrowing into equity, he needs to hibernate. Hibernation is characterized by a slow breathing rate and a low metabolic rate. An investor’s principal problems in handling his money is the despairing need for metabolic activity. He simply can’t stay idle. Little wonder that an equity-phile is also referred to as a bull. But the irony begins there. The bull is an animal unknown for low metabolic activity. It certainly is not the hibernating kind. Ironically, the animal that is better placed to hibernate is actually the bear. Why this hibernation analogy? In times when a grueling economic phase lasts for a long while, one needs to outlast that phase. This means that one must store enough energy to outlast that phase. Equity investing is actually about storing enough conviction. Conviction is the energy that helps you last long phases of hibernating with your equity investments even when they don’t do too much. 2015 was a year when we advocated building conviction. A good part of the hibernation with one’s investments has also happened in 2015. But, hibernation in investing doesn’t follow a clock. Economic cycles don’t work like seasons and tick to biological clocks. They have a rhythm of their own. So, one simply has no option but to stay energized and in a state of low metabolic activity till the cycle gets better. Strangely, the equity bull needs to learn this craft from an animal he metaphorically abhors in the stock market. The Bear.
Risk means more things can happen than will happen. – Howard Marks.