By Dr. James M. Dahle, WCI Founder
In the Book of Mormon, there is a story about a fellow named Lehi who had a dream. In the dream, he had to traverse a strait and narrow path to arrive at a tree that represented eternal life. Along the way, there were many “mists of darkness” that could cause him to lose his way and temptations from those not on the path, trying to convince him to leave the path and wander off. There was an iron rod along the way to assist him in staying on the path.
By staying the course down the strait and narrow path holding on to the iron rod, Lehi reached his goal. Perhaps it looked something like this:
In the Odyssey, perhaps the greatest mythical story ever about staying the course, there are two similar stories. The first is when Odysseus and his crew have to pass between the massive whirlpool known as Charybdis and the six-headed monster known as Scylla. The lesson is that sometimes damage must be taken but that a middle course will minimize it.
The second story is more widely known, and it involves the Sirens, creatures that were half bird and half woman (or in some versions, a foul creature disguised as a fair-looking mermaid) who had such a seductive singing voice that it would tempt sailors to either jump overboard or sail into rocks where they would be shipwrecked (and then presumably be eaten by the Sirens). In the tale, Odysseus wants to hear the singing, but he knows it will lead to his certain death. So, he comes up with a scheme to hear the singing but avoid dying. He stops the ears of his crew with beeswax and has them tie him to the mast and swear not to let him go no matter what he does or says. In this manner, the crew stays the course despite Odysseus's instructions during the ordeal.
You Must Stay the Course!
All of these stories emphasize following a carefully charted course, no matter what might be on each side of that path. Perhaps the most important part of long-term investing is staying the course with whatever reasonable investing plan you have chosen. Jack Bogle said:
“Stay the course. No matter what happens, stick to your program. I've said ‘Stay the course' a thousand times, and I meant it every time. It is the most important single piece of investment wisdom I can give to you.”
Why Is It So Hard to Stay the Course?
Yet time after time, we see investors struggle to stay the course, resulting in higher taxes, higher transaction costs, lower returns, and even outright scams. This might even be the reason why doctors have their reputation as terrible investors, as evidenced in this tweet.
This tweet received many more likes than the tweeter had followers! Why is it so hard for investors—and doctors in particular—to stay the course with their investing plan? I can only speculate, but here are my best guesses.
#1 Humans Crave Novelty
I was talking with one of my partners who freely admits he enjoys “collecting” Vanguard mutual funds in his taxable account. He loves them all and so he buys them. He's got a dozen already and keeps buying more. He even decided to dip his toe into private real estate with an investment in the Fundrise private REIT. Despite my best efforts to tell him he needed a long-term plan to follow, he finds saving and investing enjoyable and exciting. As humans, we crave novelty. We want to go to new places, see new entertainment, meet new people, and invest in new stuff. Unfortunately, following that natural desire is not a great investing technique. It certainly leads to additional complexity, it generally leads to additional costs, and it probably leads to lower returns.
This desire for novelty is evidenced by the sheer number of popular alternative investments out there. While an academic case can be made to include an “alternative” asset class or two while building your portfolio, there is no justifiable argument to include five, 10, or more—much less to switch rapidly between them. Take a look at the interest in the asset class du jour in any given year. It might be precious metals, cryptocurrency, non-fungible tokens, ARK Funds, special purpose acquisition companies, technology stocks, art, commodities, private equity, or hedge funds. It is even easier for doctors to fall prey to these alternatives given that they easily qualify as accredited investors and thus are actually allowed to invest in them.
Some people just love making deals (a term economists call transactional utility, where the transaction itself brings joy)—even if it isn't a good long-term investment.
Humans are social creatures, and we fear missing out on what other people are enjoying. We want to be like everybody else. This desire might peak in middle school, but, for most of us, it never goes away completely. This is probably why socially awkward introverts often make the best investors. Not only are they likely to save more money (what's the point of going out and spending it when you hate doing so?), but they are far less likely to be influenced by the actions of others. When we hear about our friends or people we don't even know on social media making money hand over fist, we want to do what they're doing—even if, on careful inspection, what they are doing is a terrible long-term plan. Combine this natural FOMO with people who lie, tell half-truths, or don't even know how to accurately calculate a return, and it can cause us to chase all kinds of “sirens” and wander off into the “mists of darkness.”
A lot of the interest in real estate as an asset class among physicians in the last five years is driven by this. Those who make money by selling you investments or courses to teach you how to invest stoke that FOMO as best they (we?) can. I have had many doctors confess to me that they feel serious FOMO every time WCI publishes something about an asset class they don't already have in their portfolio.
But remember what Rick Ferri has said:
“The truth about index funds must be repeated over and over because lies are constantly being told. Index funds are not evil, they are not destroying the markets, and will not blow-up your portfolio. To the contrary, they have outperformed most active investment strategies and continue to save investors billions of dollars per year in fees.”
Is buy-and-hold index fund investing boring? Incredibly. Is there any reasonable argument out there against it as a reasonable long-term investing technique? Not one.
#3 Hard Work and Patience
Despite how simple investing can be, it takes a surprising amount of work and patience to do it successfully. It's easier to just bounce around from one investment to another than it is to formally design an investing plan. It also takes an almost superhuman amount of patience to watch some of your investments do poorly for literally years as you know they must in any diversified portfolio/long-term plan. Most of us have a 60ish-year investing horizon (30-year career, 30 years in retirement). That's a lot of staying the course, and it's hard.
Hold to the Rod
Luckily, we're not alone and left to our own devices. Like Lehi, we can follow an iron rod. In this case, our iron rod is a written investing plan. When the mists of darkness come and people try to tempt you from the strait and narrow, you can simply refer back to your plan. Heck, your plan, like ours, can even have a provision in it that requires you to wait three months before making any portfolio changes. (Amazing how few changes you will still want to make three months after having a hare-brained idea.) How can you obtain a written investing plan? Well, there are usually three approaches.
#1 Write It Yourself
If you feel qualified by virtue of having read extensively about investing, experienced it yourself, and spent lots of time on forums answering and asking questions, you can simply write the plan yourself. That's what I and many other hobbyists have done. It might be the most time-consuming way to do it, but it is certainly the cheapest.
#2 Take Fire Your Financial Advisor
I know most white coat investors are not hobbyists. Heck, according to a recent survey, half of doctors don't even want to have 10 out of 10 financial literacy. They just want to reap most of the benefits of being a good investor without having to do too much work. For those folks, we designed a best-selling online course called Fire Your Financial Advisor that takes you by the hand, teaches you what you need to know (and only what you need to know), and then helps you to write your own financial plan. Yes, it costs a few hundred dollars, but given the value of your time, it's an incredible value compared to having to learn enough on your own to do this task. It's also an incredible value when compared to the cost of the third option below. We even have a version that you can use your CME funds to buy, called Financial Wellness and Burnout Prevention for Medical Professionals. It costs more before tax, but not after tax, especially if you have CME dollars you're not sure what to do with.
#3 Hire a Professional
If you're really not a do-it-yourselfer or simply want the reassurance from a pro that it is being done right, we keep a list of recommended financial planners who have been initially vetted by us and are continually vetted by white coat investors in an ongoing way. They are all fee-only fiduciaries. You can simply hire one of them to write a financial plan for you. You can just have them draft it up for you to follow, or you can hire them to implement and carry it out as well. This does not require very much time or expertise on your behalf, but it is definitely the most expensive of the options. Expect to pay a four-figure amount for your financial plan.
Follow Your Plan
Once you have an iron rod, you need to actually use it and follow it. It will lead you between Charybdis and Scylla. Then, when the investment sirens start singing about Bitcoin and SPACs, you can either do as Odysseus did and lash yourself to the mast or, if you're really smart, be like his crew and stop your ears with beeswax!
In my experience, beginner investors struggle to stay the course at market bottoms. They stare into the abyss of Charybdis, panic, and sell low. Intermediate investors, however, struggle more at market highs. They fear the market must soon go down, and they need to sell before it does. Or they start seeing Sirens in other asset classes doing even better than their investments, get FOMO, and jump overboard just in time to drown and get eaten.
Advanced investors, however, always stay the course. They may never get to hear the Siren song, but they will successfully reach their waiting lover and comfortable home in Ithaca.
What do you think? Why is it so hard for investors, especially physician investors, to stay the course? What do you do to help you follow your plan when times get tough or when it seems others are leaving you behind? Comment below!