“Wisely and slow; they stumble that run fast.” (Romeo and Juliet)

All throughout history we have heard of the triumph of the tortoise over the hare and the mantra that slow and steady wins the race. Shakespeare reminds us of this wisdom and we contend that this mantra is one of the most critical elements of successful investing. Executing a consistent investment plan and process over time is the key to wealth preservation and growth, and we believe that lower volatility strategies (avoiding the stumbles) will generate the highest long-term returns. Higher volatility investments (those that run fast) will have short bursts of outstanding performance, but tend to experience higher frequency and severity of downturns.

The mathematics of loss is not kind to the hares. If you lose (10%), you have to make 11% to get even; lose (20%), you have to make 25%; lose (50%) and you have to make 100% just to get your capital back. Investing in a low volatility strategy requires patience, and Shakespeare had some thoughts on that as well. 

“What cannot be preserved when fortune takes, Patience her injury a mockery makes?” (Othello)

Great investors understand the value of patience and follow a disciplined approach. They stay the course, even when going through difficult periods (when fortune takes) and redouble their efforts to remain disciplined when the strategy is out of favor. Great investors know that good strategies (and good investments) will play out well. When the only thing that has changed is the price of an investment, it is time to increase the position, not sell it, and patience will be rewarded over time as the price comes back to reflect the true underlying value. Patience is also necessary in executing long-term focused investment approaches like the Endowment Model. 

“Well, God give them wisdom that have it; and those that are fools, let them use their talents.” (Twelfth Night)

(more…)