Fruits and Power: A History Lesson

We all know optimists and pessimists. There are people who see the best in everything and others who find the cloud in an otherwise blue sky. In my career experience, I have found most people are able to wear both the optimist hat and the pessimist hat when investing.

When the stock market is humming along and greed kicks in, people elevate their expectations and lose historical perspective. When the stock market is slogging through inevitable downturns, fear kicks in and people also lose perspective.

Vanguard did a study a few years ago that concluded what many studies before it indicated: people who invest with their emotions and a short-term mentality will likely experience poor performance from those investments. As a professional with more than 25 years helping people make investment decisions, I have heard many investor concerns, fueled by emotion, that are completely disconnected from logic.

With the Department of Labor (DOL) Fiduciary regulations in effect, there is a sharp focus on fees and expenses associated with investing. This by itself is a great development. Transparency in all business dealings, especially with your investments, should be of the utmost importance to you and your advisor. However, as Vanguard determined, the most significant value an advisor may provide is keeping you from making emotional decisions which are not in your best interest. This cannot be measured in a prospectus or put in to a fee agreement, but it is very real.

I understand you may think you wouldn’t intentionally make a decision not in your own best interest, but you likely have and will probably do it again. A great advisor is like the best teacher or coach. You’ve known people who guided you when you were unsure. They showed you a path to your goals when you didn’t see it. This is what a quality advisor can and should be for you.

Now the history lesson regarding fruit and power …

Apple, the company, has impacted everyday Americans as much as any company in the past several decades. Many people view Apple as a great company and therefore a great stock to own. When you invest, there are no guarantees even with great companies. Which Apple stock did you own? Did you own Apple stock that went up 39.24 percent in 2014? Did you own Apple stock that went down 32.75 percent from mid-September 2012 to mid-September 2013, while the S&P 500 was up more than 15 percent during the same time frame? It’s the same company and the same stock. How might your behavior be different during those two relatively short time frames?

Duke Energy is in the S&P 500 and provides power to millions of people. I’ve heard people say “We will always need power” as a justification to own this stock. My first thought when I hear this is “We don’t need power from Duke any more than we need to buy goods from Montgomery Ward, Kmart, Sears, JC Penney or any other dead or dying retailers.” We will always take pictures, but we didn’t always need Kodak or film. But I digress.

Which Duke stock did you own? Did you own Duke stock that went up 21.63 percent in five months starting in August 2014? Did you own Duke stock that went down 34.58 percent in 14 months beginning New Year’s Day 2008? It’s the same company and the same stock. How might your behavior be different during those two relatively short time frames?

There are no “sure things,” and investors must accept that even the best companies will see their stock price swing wildly up and down within short periods. This is true with fruit companies and powerful companies. The best professionals understand this and commit to helping clients keep a healthy planning perspective and emotion to a minimum when making decisions.