There Is No ‘Easy Button’ in Investing

We all know Super Bowls are famous for their record-breaking football audiences, but they’re equally renowned for their commercials. Companies spend a lot of money trying to leave a memorable impression, competing for the title of best 30-second spot during the game. During the Super Bowl in 2005, Staples introduced the ‘Easy Button’ commercial (you can look it up on YouTube if you are curious). The commercial showed four different challenging life situations humorously resolved by pushing the ‘Easy Button’. Staples concluded with the statement: “Life can be hard, but for office supplies, just hit the ‘Easy Button’.”

 

 

Financial news channels seem to offer a wealth of information but be wary of those advertisers who offer courses and books promising easy money in stock trading. They usually have poor track records. Just watching the news channels can leave investors with the impression that they are smarter investors which leads to better performance. However, information overload can also lead to overconfidence. Supposed ‘gurus’ are everywhere with predictions of how to make fast money. CNBC even has a segment “Fast Money” where guests deliver their latest tips. Twice a year Barron’s publishes a roundtable of industry heavyweights espousing their latest predictions. You get the idea; it all seems so easy, doesn’t it?

 

 

There is nothing wrong with gathering ideas from various sources, even large institutions do that. Everyone, even Warren Buffet, occasionally attempts to take advantage of a short-term opportunity. The difference is successful investors that have created wealth know there is no ‘Easy Button’. To compound wealth it takes a disciplined, well-thought-out strategy that is executed over time.

 

 

In today’s world, anyone can create a podcast or YouTube channel and become an immediate expert without any expertise. Most of these wannabe gurus don’t plan to get rich by investing, they want celebrity status and big paydays that come with viral content or a large following. Ignoring the noise seems to test all but the most disciplined of investors. When all this information can be accessed on your phone in seconds, it leaves the impression that there is an ‘Easy Button’ after all.

 

 

Sure, there are stories of sudden wealth – company stock options, entertainers and athletes that are paid extremely well at young ages, and the occasional right spot at the right time. To prove that it is not easy, how many of these overnight millionaires keep their wealth long-term? The statistics are horrible for lottery winners.

 

 

Understanding the power of compounding and how challenging it is to maintain for an extended period seems to be the best antidote for the temptation to have it all now. It’s tempting to chase after companies like Nvidia that seem to double every three months, rather than focusing on steady returns. Why even worry about compounding your money at the rate of the market? Why question what must happen to earnings and dividends to have them double in 10 years, when the answers are available right on your phone? Remember, Warren Buffett accumulated 99% of his wealth after the age of 65. He was well-known before that, but it took time, then it seemed easy.

 

 

The downside to a dividend growth strategy is that it is time-intensive with few shortcuts. The upside is that you can watch the income grow and accumulate over time. However, if you are patient, in a few years you will likely experience how well it works. You rarely see compounding stories make headlines, and they may even suffer as investors move from value and quality to the latest hot stock ideas. When it appears easy and everyone is making money, and they seem to have found their ‘Easy Button’, that is usually about the time you find out it wasn’t. Life teaches us that achievements never come easily. If it does come easy, it takes a disciplined mindset to hang on to it. The lesson in life and investing seems to be almost ironic; it is easy to do, but it is also easy not to do the hard work and remain patient.

 

 

There is no ‘Easy Button’ when it comes to investing.

 

Observations On The Market No. 397