Pragmatic Capitalism

Capital for Living a More Practical Life


By David Schawel, CFA, Economic Musings

In my younger days when golfing was a regular endeavor of mine, practicing at the driving range was a habit.  As I reflect on those days, I find the whole concept of a driving range completely ridiculous. People slaving away on 3×3 astro turf mats.  Fancy warmup swings.  New drivers with heads the size of a grapefruit.  Can you imagine a primitive people group watching this take place?

So why do people go to range?  They don’t go because they enjoy it, I promise.  By the fifth or sixth swing, the forty-something man is frustrated and bewildered that his ball is still slicing.  His expensive equipment and initial enthusiasm have failed him.  With the exception of the few who actually take lessons and practice specific habits, the rest of the poor “hacks” continue to hit away, ball after ball.  They try various “tips” they picked up in Golf Digest such as “keep your head down” or “slow down your backswing”.

The truth is that these folks are hopeless.  Much to the chagrin of efficient market proponents, these same characteristics are manifested in the average investor.  Like the golfer who aimlessly hacks at bucket of balls, so is the plight of the average investor.  While even the most experienced professional investors are not immune to mistakes, having a game plan can go a long ways:

I believe that having discipline to follow your rules is essential.  Without specific clear and tested rules, speculators do not have any chance at success.  Why?  Because speculators without a plan are like a general without a strategy, and therefore without an actionable battle plan. Speculators without a single clear plan can only act and react, act and react, to the slings and arrows of stock market misfortune, until they are finally defeated.  – Jesse Livermore

Do you have a plan when investing?  A plan on when to sell or not if a position goes up/down 20%?  Like the amateur golfer perpetually trying something new, so is the investor whose emotions are tossed & turned by the latest sentiment shouted out on CNBC, Barron’s or even Twitter.  Having a solid game plan is by no means a cure all, however it is no doubt a fundamental of successful investing.

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