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What My Dog Taught Me About Investing – The 10 Things Your Dog Knows About Portfolio Management

Monty is our two-year-old Labrador Retriever. He’s very smart. And, he has taught me a great deal about investing.

A guest post by Tony Termini

Monty is our two-year-old Labrador Retriever. He’s very smart. And, he has taught me a great deal about investing. So, I wanted to share some of those lessons with you.

1) Bury Bones

Monty likes to bury bones. He has them hidden everywhere along our regular walking route. Interestingly, he never digs them up. He understands that they’ll be there when he ultimately needs them. So, he doesn’t fuss with them. He never uncovers his secret stashes looking to move them to some other secure location to protect them from some unknown peril. Monty understands that there may be a risk of loss, but he is willing to accept that short-term threat because he knows, that in time, those bones will ferment into the even more valuable stinky, moldy morsels that dogs so love.

Monty couldn’t be clearer on this lesson about the folly of market timing. His bone hoarding habit is pure investment genius. He clearly understands that for his strategy to work, he needs to let it play out over time. If Monty could speak he would say, “It’s not about timing the market; it’s about time in the market!”

He is a very smart dog.

2) Live For Today

Like all dogs, Monty lives in the moment. Monty doesn’t consider, contemplate, or conjecture his next move. He just makes it. For him, time is of the essence and there is no time like the present. If the pillow is to be shredded, it must be shredded now!  If the cat needs a quick chase up the stairs, the chase begins straightaway. Why put things off?

Indeed!  This is the essence of Monty’s investment philosophy. Why put off into the future what must be done now?  If you know you need to save and you know that your retirement will suffer if you don’t and you know the time value of money, then why in the world would you put it off?  Yes, live for today – but save for tomorrow!  Just do it now.

3) Sometimes Little Dogs Nip

Monty encounters lots of other dogs on our morning walks. Many of them are big, stout, sturdy breeds that exude confidence and composure. Some are small pocket-sized pooches that a Hollywood starlet might carry around in a handbag. A few of these adorable little demons appear to have it out for Monty. They race up to him screaming like banshees, gnashing their teeth, growling, and nipping at him. One recently jumped up and bit Monty on the cheek in an obvious attempt to goad him into an angry altercation. It didn’t work. Monty was unfazed.

Monty’s reaction to the terrible terrier offers a great investment lesson. Don’t let emotion get in the way. I suspect that Monty would have napped through the 3% Brexit selloff. I am equally convinced that he has yawned at the better-than-9%-rebound the market has experienced since. Neither despondent during regular market cycle corrections nor jubilant at price breakouts, Monty teaches us to maintain the demeanor of a cool-headed, composed long-term investor. Don’t let emotion get in the way of your strategic plan or trick you into making a snap short-term decision that could derail things.

4) The Toy Tub

We have a big plastic tub in our house. I think it was intended to chill kegs for summer parties. Monty doesn’t drink beer, so he uses it as a treasure chest for toys. I hate to admit it, but I suspect that he steals them from our neighbors’ dogs. There are many dogs in the neighborhood and only one pet store, so everybody has access to the exact same selection of playthings. Each dog in the neighborhood has his or her favorite – or several of that favorite – toy in his or her collection. Some of the pups on the block are over-weighted in plush; others have a dangerous concentration of rawhide. One has far too many tennis balls. And, still another is a glutton for Greenies. Yet, Monty is very selective in his pilfering. He does not steal the same article from any two dogs. Each acquisition is different.

Good boy Monty!  What a great lesson in diversification. While he would definitely keep all his eggs in one basket – as it would make them easier to eat – Monty definitely chooses to have a reasonable mix of toys. He knows that this assortment decreases his risk of boredom, just as having a mix of stocks, bonds, and cash in your portfolio decreases your risk of loss over time. Monty knows that the tennis balls are different than the squeaky goose and that each will behave independently of the other in different environments, just as your mix of different stocks will benefit your portfolio’s returns over the course of many market cycles. Monty’s great lesson here is to avoid having a concentrated position in any one company or sector. Did I mention how smart he is?

5) Sometimes Those Toys Break

Monty likes to hold toys in his mouth and vigorously shakes them like rag dolls. This is a very fun activity and a very good method to rip all the stuffing out of a toy. It’s an even better method for extricating that little plastic squeaky thing that makes the wonderful noise Monty loves so much!  Oddly, after the toys are eviscerated and the little plastic squeaky thing is chewed to bits so small that they make the vacuum cleaner chatter like a maraca, Monty loses all interest in them. He completely abandons them and behaves as if they were never once his favorite thing in the whole world. It is a completely objective, unsentimental abrogation. This would be sad if it weren’t such a great investment lesson!

Monty’s seemingly unsympathetic estrangement teaches us that sometimes things can go wrong with even our best-researched investment ideas. While there may be things that we absolutely fall in love with (which we shouldn’t because as Monty taught us with the little dog vignette, investing should be unemotional), if they don’t work out, we should get rid of them. Here Monty tells us that we should let our winners run and we should cut our losses as early as possible.

6) The Neighbor’s Garbage Can

The first time Monty saw the neighbor’s garbage can on the street it confused him. Like all dogs, he was startled by an inanimate object showing up where previously there had been nothing. He stared at the receptacle for a good ten minutes barking his deep, loud distress bark. His back was arched and the hair down its middle was hunched up like that of a Rhodesian Ridgeback. At first, I felt bad for scaring him until I realized that this was just Monty offering more sage advice on investing.

He was trying to explain that you should never invest in anything that you don’t understand. If you don’t know what a specific company does, then don’t buy it. If you can’t explain in three quick sentences to a five-year-old why you are interested in some newfangled leveraged reverse-short futures hedge fund, then the only sensible thing to do is to not invest in it. If you vet it and still don’t get it – forget it!

7) Walking Off Leash

Sometimes Monty and I walk off-leash, which for many can be scary because you never know where the dog is going to go. Yet, when we get to the crosswalk Monty will sit down and just wait until I give him the okay to cross. He won’t fuss, pant, bark, or stand up. He just sits there. This behavior is another good lesson on investing.

The point Monty offers here is that investors need to be patient. Depending on how old you are, retirement is probably a far-off event. Even if it’s not, you’re pretty likely to live an additional 20 years after you stop working. And, there is no better way to fund long-term financial needs than with long-term investments. And, history has shown us that your best odds for growing your wealth over time are by being invested in equities, which as Monty so eloquently points out, requires that you be patient!

8) Was That A Squirrel or A Bunny Rabbit?

Our morning walks always take us through the park, which is a wonderful place filled with all manner of little creatures. Many of these critters are elusive to Monty’s eye … but never his nose!  The other day he came upon the scent of something. Maybe it was a squirrel. Maybe a rabbit. Who knows?  But, Monty was on it instantly. Head pointed down, nose pushed so close to the ground that it practically touched it. He ran around zigging and zagging back and forth frantically chasing the scent along the path taken by whichever rodent traversed it. He raced away, further and further. I yelled. I screamed. I cajoled. I begged. “Monty, come back!”  “Monty, come back!”  Nothing!  I was furious. That is until I realized what he was teaching me.

Monty is a cool character. And, he knows that successful investing comes as a result of keeping your head down and ignoring the yelling and screaming the financial media throws out at you. These are just distractions that can trip up a well thought out investment plan. Ignore the noise. Keep your head down. And, stay on the scent.

9) Okay, It Was Definitely A Squirrel

At a certain point, Monty stopped chasing that scent and began walking back to me, his tail wagging so vigorously that its centrifugal force lifted his hind legs off the ground. His stare was laser beam focused on me. And, then, bang. In the blink of an eye, he was off on a perpendicular trajectory blazing a trail toward the squirrel that now was running for its life and the old oak tree that was to be its refuge. This was pure puppy instinct – reacting to the stimulus of the scurrying squirrel. Monty didn’t have to think it through. It was another great investment lesson.

This was Monty telling me, “Don’t over-think things.”  How many times have you talked yourself out of making an investment that in hindsight was actually a great idea?  How many times have you parsed things so minutely that you couldn’t see any of the potential of the investment over all the risks you discovered?  This stuff isn’t that difficult. And, there are just a few unwavering principles that if followed systematically will almost always lead you to long-term success. And, coincidentally, Monty knows all of them. So, don’t overthink the process.

10) Time For Dinner

At the end of the day, we put down a bowl of delicious crunchy food for Monty. In most cases, he’ll inhale it instantly. Other times, he’ll have a few bites and go take a nap. When he does, we’ll put the bowl on the counter. Monty doesn’t counter surf. He knows the risk of grasping or stretching to get that extra morsel. He doesn’t want to get a cramp in his neck or knock the crunchies onto the floor where they could slide under the refrigerator, never to be eaten again. But, this is not just dog behavior; this is pure investment genius, Monty style!

Monty knows that stretching for yield often means taking on more risk (i.e., crunchies lost under the refrigerator). Your crunchies, of course, would be actual hard-earned dollars. And, recouping a big loss could take years. Stretching for yield or chasing extra return is ill-advised because it necessarily means taking on more risk. And, you should never take on more risk than you are comfortable with. Stay within the parameters of your well thought out strategic asset allocation. We know that in an investment environment that has recently offered single-digit returns, it’s tempting to look for higher yield opportunities. But, the risk of real loss in Monty’s opinion is a lot worse than the risk of earning a lower-than-historic average rate of return for a short period of time.

In the final analysis, we suggest that you follow Monty’s advice and avoid some of the most common mistakes that investors sometimes make. No wonder dogs are our best friends!

Tony Termini periodically writes witticisms for Better Money Decisions from his home in Reno, Nevada, where he spends time walking dogs and opining on the stock market. He began his investment career in the mid-1980s at Kidder, Peabody & Company’s Private Client Group. After nearly 20 years in San Francisco with stints at Bear Stearns and Merrill Lynch, Tony joined Kochis Fitz (now Aspiriant), one of the largest independent Wealth Management firms in the country. He contributed to the book Wealth Management: A Concise Guide to Financial Planning and Investment Management for Wealthy Clients. Tony retired in 2005 and is now the Managing Partner of Beta Capital, LLC, a private hedge fund.

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