Try to remain calm 13th January 2025

“When I see an anxious person, I ask myself, what do they want ? For if a person wasn’t
wanting something outside of their own control, why would they be stricken by anxiety ?”

- Epictetus, Discourses, 2.13.1

“The anxious father, worried about his children. What does he want ? A world that is always
safe. A frenzied traveller – what does she want ? For the weather to hold and for traffic to
part so she can make her flight. A nervous investor ? That the market will turn around and an
investment will pay off.

“All of these scenarios hold the same thing in common. As Epictetus says, it’s wanting
something outside our control. Getting worked up, getting excited, nervously pacing – these
intense, pained and anxious moments show us at our most futile and servile. Staring at the
clock, at the ticket, at the next checkout lane over, at the sky – it’s as if we all belong to a
religious cult that believes the god of fate will only give us what we want if we sacrifice our
peace of mind.

“Today, when you find yourself getting anxious, ask yourself: Why are my insides twisted into
knots ? Am I control here or is my anxiety ? And most important: Is my anxiety doing me any
good ?”

- Ryan Holiday, The Daily Stoic.

Truth, said the American jurist Oliver Wendell Holmes, is tough. “It will not break, like a
bubble, at a touch; nay, you may kick it about all day like a football, and it will be round and
full at evening.” In a quote attributed to Mark Twain, if you tell the truth, you don’t have to
remember anything. So the only real question remains: for investors, can there be more than
one truth ?

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We’re not sure there can be. There are clearly various styles of investing, just as each and
every one of us has a different personality, needs, objectives, and fears. But fundamentally, we
think most of us are probably after more or less the same thing: decent, inflation-beating
returns, probably allied with some form of income, and without incurring too much downside
risk and notably the risk of ruin.

To any value investor, the one fundamental truth is the price. The market price of any traded
security is dictated every day between willing adults, buyer and seller. But there is no
compulsion to accept that price. If we don’t like the price on a given day or hour, we can
always wait for a better one, or look for something else.

It cannot be said too often: the most important characteristic of any investment you make,
be it property, stocks, bonds or anything else, is the price you pay when you first buy it.
Overpay, and you are likely to regret it. Buy it cheaply, and you will likely do well.

The French scientist Blaise Pascal once suggested that all of humanity’s problems stem for our
inability to sit quietly in a room alone. He was more right than he could possibly have known
– especially in a world of digital connectivity, smartphones, the wireless Internet, and 24/7
social media.

The problem for the 21st century investor is no different to the problem for the 17th century
physicist: too many distractions, almost all of them triggered by our own essential curiosity
and inability to sit still.

Which is why we now find ourselves increasingly drawn to the Stoics. We don’t remember
being taught anything about them at school. We suspect we first came across them during
The Silence of the Lambs when Hannibal Lecter (Anthony Hopkins) alludes to Marcus Aurelius:

“Of each particular thing ask: what is it in itself ? What is its nature ?”

The Stoic approach to life can be summed up in Reinhold Niebuhr’s Serenity Prayer, which has
been adopted by Alcoholics Anonymous:

“God grant me the serenity to accept the things I cannot change, courage to change the things
I can, and wisdom to know the difference.”

There is much utility and wisdom in that short phrase – for investors as for everybody else.

After 35 years of working in the capital markets, the principles of investing seem, if anything,
to get simpler by the day. The most important drivers of return in portfolio construction are
asset allocation and then security selection.

Asset allocation is “simply” finding the optimal (or perhaps satisficing) mix of different types
of investment types to ensure you have a sensibly diversified portfolio. It makes sense to own
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assets that aren’t correlated to each other, and yet which all offer the potential – based, in
almost all cases, on the truth of price – for decent returns over the medium and longer term.

For us, those asset types are ‘value’ stocks; systematic trend-following funds; and real assets,
notably assets related to the monetary metals, gold and silver. Except as a source of liquidity,
both cash and bonds no longer feature materially in our portfolios given their comparatively
low yields relative to their credit risks, and our expectations of an uncomfortable inflationary
future not experienced since the 1970s.

The one common thread that links everything within the portfolio is that we want them to
be at least somewhat resistant to a market crash. In the case of the equity component, while
we can’t immunise everything against “crash risk”, we can at least ensure we don’t consciously
overpay for investments, and we can also try to ensure that they possess what Ben Graham
famously described as a “margin of safety” that will, to some extent, possibly insulate them
against grievous market falls.

And don’t expect all of these types of assets to work all of the time, because life’s not like
that, and neither are the financial markets. Trend-followers, for example, made pretty heavy
weather of things during the years of ZIRP. But that wasn’t a huge concern, to the extent that
their “crash-proofing” credentials weren’t realistically required – when equity markets
essentially delivered the goods.

Security selection, again, should be driven primarily by the truth of price. In the world of listed
equities, for example, we favour companies run by principled, shareholder-friendly managers
who are also expert at allocating their own corporate capital (ie, deciding whether it is best
spent on corporate acquisitions, or on stock buybacks, or on dividends), and where the shares
of those companies are not obviously trading at any great premium to their inherent net or
book value.

But the emotional and psychological challenges stay with us. Inasmuch as the politics and
economics of our time influence the investment debate, you could plausibly argue today that
the challenges are more extreme than they have been for several generations. The Covid
crisis alone has lifted up a giant rock in the middle of our political and media culture, and we
doubt whether anyone anywhere much likes what has been revealed scuttling around
underneath it.

The re-election of Donald Trump, and the emergence of Elon Musk as a social media icon,
have sent twin unconventional wrecking balls into the world of both domestic and
international political protocol. The global financial crisis (now almost two decades ago,
though we live with its aftermath still) has ushered in wholly unconventional monetary policies
like quantitative easing (QE), zero interest rate policy (ZIRP) and negative interest rate policy
(NIRP) which many of us found wholly morally questionable but nevertheless massively
distorting upon asset prices.

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Which is where the Stoics come in. If we’re frankly unable to change the things that concern
us (the woke mind virus; the economic insanity of ‘net zero’; foreign wars) then it makes more
sense to concentrate on the things that we can change – which is not just our investment
choices and our investment strategy, but also how we choose to respond to those external
world events.

In many cases, as the likes of Rolf Dobelli have suggested, the best response to those things,
particularly those things brought to us by the news media, is simply to ignore them – or, even
better, never even to be troubled by them in the first place. The essayist and trader Nassim
Taleb claims never to read newspapers or to watch news, on the basis that if anything truly
important is going on, he’ll always find out about it through friends, say, at a drinks party.

Notwithstanding Blaise Pascal’s advice, if we can bear to sit still in a quiet room alone, we can
then get to consider the following extraordinary investing facts highlighted by the US market
analyst Michael Batnick just a few years ago. While they relate exclusively to the US market
(not least because the US market has the most historic data but is also the biggest), we can
presume that many of these statements will have closely related kin in terms of our own
FTSE’s performance figures.

1. Since 1916, the Dow has made new all-time highs less than 5% of all
days, but over that time it’s up 25,568%.
95% of the time you’re underwater. The less you look the better off you’ll be.

2. The Dow has compounded at less than 3 basis points a day since 1970.
Since then it’s up more than 3,000%.
Compounding really is magic.

3. The Dow has only been positive 52% of all days. The average daily
return is 0.73% when it’s up and -0.76% when it’s down.
See above.

4. The Dow has spent more time 40% or more below the highs than
within 2% of the highs (20.6% of days vs. 18.4% of days)
No pain no gain.

5. The Dow gained 38 points in the 1970s

See above.

6. Why am I using the Dow instead of the S&P 500? They’re effectively
the same thing. The rolling one-year correlation since 1970 is .95.
Stop wasting your time on this.

7. At the low in 2009, U.S. stocks were back to where they were in 1996.
Stocks for the long-run. The very long-run. Usually. Sometimes.
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8. At the low in 2009, Japanese stocks were back to where they were in
1980.
See above.

9. U.S. one-month treasury bills went 68 years with a negative real return.
What’s safe in the short-run can be risky in the long-run.

10. At the bottom in 2009, long-term U.S. government bonds

outperformed the stock market over the previous 40 years
Stocks generally outperform bonds, but there are no guarantees.

11. Gold and the Dow were both 800 in 1980. Today Gold is $1,300/ounce,
the Dow is near 26k. [Accurate at the initial time of writing.]
Cash flows > commodities.

12. Over the last twenty years, Gold is up 340%. Stocks are up 208%, with
dividends. [Accurate at the initial time of writing.]
You can support any argument by changing the start and end dates.

13. Since 1980, Gold is up 153%. Inflation is up 230%. [Accurate at the

initial time of writing.]
See above.

14. CTAs [systematic trend-followers] gained 14% in 2008 when stocks

lost 37%. Since 2009 they’re up 2.5%. Stocks are up 282%. [Accurate at
the initial time of writing.]
Non-correlation cuts both ways.

15. If you had invested from 1960-1980 and beaten the market by 5% each
year, you would have made less money than if you had invested from
1980-2000 and underperformed the market by 5% a year.
When you were born > almost everything else.

16. The Dow lost 17% in 1929, 34% in 1930, 53% in 1931 and 23% in 1932.
Be grateful.

17. Warren Buffett is the greatest investor of all-time. In the 20 months

leading up to the dotcom peak, Berkshire Hathaway lost 45% of its value.
The NASDAQ 100 gained 225% over the same time.
No pain no premium.

18. Only 47.7% of stocks generated a life-time return that match one-
month treasury bills.

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 The reason why so many mutual funds fail to beat the market is because so many stocks
fail to beat the market.

19. Dow earnings were cut in half in 1908. The index gained 46%.
The stock market ≠ the economy.

20. In 1949 the stock market was trading at 6.8x earnings and had a 7.5%
dividend yield. 50 years later it reached a high of 30x earnings and carried
just a 1% dividend yield.
You can calculate everything yet still not know how investors are going to feel.

If we could only highlight a handful of Michael Batnick’s observations drawn from this data,
they would be the following:

• The less you look, the better off you’ll be. Tracking your portfolio returns in real time
will be injurious to your mental health.
• When you were born trumps just about everything else in the significance not just of
your investing experience but your investing outlook as well.
• Cash flows are better than commodities. (But own both. And own real assets anyway.)
• The stock market is not the same as the economy.
• You can calculate everything yet still not know how investors are going to feel. In
other words, focus solely on the truth of price, and let other people worry about the
“macro”.

And we strongly recommend buying a copy of Ryan Holiday’s The Daily Stoic. These are dark
times, and being able to draw on tried and tested psychological sustenance is an absolute
godsend.

Tim Price is co-manager of the VT Price Value Portfolio and author of ‘Investing through the Looking
Glass: a rational guide to irrational financial markets’. You can access a full archive of these weekly
investment commentaries here. You can listen to our regular ‘State of the Markets’ podcasts, with
Paul Rodriguez of ThinkTrading.com, here. Email us: info@pricevaluepartners.com.

Price Value Partners manage investment portfolios for private clients. We also manage the
VT Price Value Portfolio, an unconstrained global vehicle investing in Benjamin Graham-style
value stocks and also in systematic trend-following funds.

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