Investment Advice from the NHL

Since there were no Stanley Cup playoffs this spring, I thought a story about hockey and investing could make an important point.

The past two years, 2003 & 2004 were great years for equity investors. You would have had to work very hard or be unlucky to get less than 25% returns in 2003, and nearly as much in 2004. And yet how many of us could have predicted a year like 2003: the best year for big cap stocks in five years; the best year for large international stocks in 17 years; and the best year for micro cap stocks in 36 years. The last time that happened, you could mail a letter for five cents.

How many of us would have predicted a great returns in 2003 ? With a war in Iraq, the bombing beginning in March. With a completely unexpected and terrifying SARS virus impacting Asia particularly, but threatening the entire world community. A totally unexpected mutual fund trading scandal involving some of the nation's largest and most prestigious fund companies. The dollar plunging against most world major currencies. And all of this against a backdrop of continued stagnant job growth and overall weak economy. It is not surprising, then, that investors, particularly in the early months of 2003, were nervous at best, even though money market fund yields were approaching 1% or even lower. The risk of the stock market just didn't seem very attractive.

Some prominent money managers quoted in Smart Money, for example, were telling us it would be the fourth consecutive down year for stocks, the first time since 1932. At the same time, in Money Magazine, a prominent brokerage house analyst was telling us the economy was very vulnerable, on the brink of a new recession, and it profiled a prominent money manager with a very successful record over the previous year, during the tough market environment, who said stocks make no sense for anybody.

We had articles appearing in the Wall Street Journal telling us investors were fleeing out of stocks, rushing to the safety of bonds. An article appearing on March 11 in the Wall Street Journal told us that equity investors had redeemed $3.7 billion in just the previous week alone. That same day that that article appeared in the Wall Street Journal, the Dow Jones Industrial Average hit its low for the year at 7,524 and, in just the next eight trading sessions, jumped nearly 1,000 points. And jumped almost 3,000 points by the close of the year.

Yet, even as stock prices were starting to turn around in April and May and then finally June, we began to hear arguments that it was already too late. An article appearing in the Wall Street Journal, June 26 telling us that we now saw classic signs of a market top...telling us it was too late to buy stocks.

So, what do we conclude from all of this?
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We look to hockey for the answer. Hockey is one of those games where they never take a time out. So it's very difficult to catch a break to go up to the snack bar, and invariably when I go to the snack bar during the hockey game, they score a goal. You hear "goal!" and you know that you have missed the highlights of the game. I mean, if you want to make certain that you see the highlights-that you benefit from them-you need to sit there for the entire 60 minutes and not take a break.

A successful investment experience is not found at the "hot dog vendors" of Wall Street who try to sell the idea that predicting the future - political events, economic events, terrorist threats - is the key to shaping portfolio returns. Nope, staying in your seat, focused on risk, asset-class capital market returns, and portfolio construction, is the only way to assure you will stay on your path to your goals ..(Sorry, I couldn't resist).

I hope this is helpful.