When fishing or investing, patience is key

Executive summary:

• The most important characteristic an angler needs is patience. We think investors do too.
• It’s also important to choose the right spot and not to give up when conditions deteriorate.
• But we also think the key is to stick it out. You won’t catch a fish unless your line is in the water, and you won’t benefit from the market’s potential move higher unless you are invested.

What characteristic does an angler need more than any other? If you said patience, you would be right. When it comes to fishing, it’s important to choose your location carefully, get prepared and then…..wait. Sometimes for quite a while.

We’ve all seen the iconic image of a lonely fisherman sitting in his dinghy in the rain waiting patiently for a fish to bite. Investing is somewhat similar.

Like fishing, successful investing is often dependent on being in the right place at the right time. That can take a lot of research, careful planning and ensuring you have the right tools. But mostly it takes patience.

As an advisor you probably spend a lot of your time cautioning your clients to remain patient, or at least not to react in knee-jerk fashion to sudden changes in the market environment. As we have shown year after year in our Value of an Advisor study, behavioral coaching – the work you do to keep your clients invested – is the greatest contributor to the value you provide.

To help you in your conversations with skittish investors, we’ve come up with a few analogies that compare investing with fishing. As avid outdoorsmen who live in the wooded northeast of our country, we've found that patience and tenacity have been invaluable in both investing and fishing.

So here goes:

In fishing, where you choose to set up is crucial. Often, the best fishing spots are located in areas known to other outdoorsmen or women. And sometimes they’re not, or you have a place you like for a reason unique to you, such as convenience or proximity to a landmark. Even if you have never fished before, you can probably imagine what a bad idea it would be to pack up and move around frequently. The majority of fishers, Jeff included, sit and wait tactfully. Of course, should the environment change, then finding a new spot is needed.

Similarly, choosing where to invest often takes much consideration and planning. This is where you, the advisor, come in. You need to know what your client hopes to achieve. You wouldn’t go to a lake to catch marlin nor would you go to a river to catch perch. If you want cod, you need to head for the ocean. Now let’s translate the analogy to investing: is your client looking for yield? Steady gains in their investments? Some gains but most of all to preserve capital? You would look in a different part of the investing universe to meet those vastly different goals.

Don’t abandon your favorite fishing spot just because it’s raining

But most of all it takes patience. And not fleeing when markets get difficult (you wouldn’t leave your favorite fishing spot just because it was raining, would you?) Those fishermen (or women) who abandon their favorite spot when it starts to rain, or gets cold, or they get tired, run the risk of missing out on the moment the perfect trout comes along. This is akin to trying to time the market. And as the chart below shows, pulling cash out of the market when things get tough and then coming back in when it has stopped raining (to continue the analogy) means potentially missing out.

(Click image to enlarge)

Source: Morningstar. Returns based on S&P 500 Index, for 10-year period ending December 31, 2023. This hypothetical example is for illustration only and is not intended to reflect the return of any actual investment. Investments do not typically grow at an even rate of return and may experience negative growth. Index returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment. Indexes are unmanaged and cannot be invested in directly.

Keep your line in the water – and your cash in the markets

If you really want to bring your catch home at the end of the day, you have to be willing to go out in your boat in the rain and your line in the water – in other words, put your cash into the markets.

The chart below depicts the S&P 500 Index over time, which highlights the importance of staying invested. While there have been many bumps in the road, you can see that the long-term trend is to move higher. Pulling your line out of the water and going home just because it was raining could make you miss out on the biggest catch. It’s like starting to head home and then hearing the guys in other boats exclaiming because the fish started to bite. You could turn around and set up again but chances are you will fall behind the others.

Help your clients remain steadfast and resist the emotional reaction to market fluctuations. That’s when you can provide a lot of value.

(Click image to enlarge)

U.S. Stocks: S&P 500 Index as of 12/31/2023. Index returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment. Indexes are unmanaged and cannot be invested in directly.

No more fish in the fishing hole?

Finally, there may be a long-held myth among those who love to fish that there may be no more fish in the fishing hole. (Shoutout to Andy Griffith). It’s true that some parts of the world’s oceans have suffered from overfishing but for the most part if there’s a lot of fish in one place there is a reason. And other fish are likely to go there for the same reason.

Taking this analogy over to the markets, some investors may feel that when an index hits a new record, it may be a good time to cash in. But as the chart below shows, one all-time high frequently leads to another one, and potentially more. In fact, the S&P 500 has set an average of 25 new all-time highs every year since 1957.

A strong economy or a change in the geopolitical or corporate environment can drive markets higher over a sustained period of time, sparking a series of new highs. The market’s direction may not change until the economic situation or political environment does, and that can often take months or years to occur. (Of course, the same trend can be seen on the downside when there is a negative event that affects the market.)

But hitting an all-time high is a more positive sign than a negative one for the market. The graph below shows that since 1957, the S&P 500 had a positive result 69% of the time in the 12 months following a market high. That rises to 86% of the time in the three years following an all-time high.

(Click image to enlarge)

Source: Morningstar. S&P 500 Price Index as of 6/30/2024. *1950s: 3/4/1957 – 12/31/1959, *2020s: 1/1/2020-6/30/2024. ATH; All time high. Index returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment. Indexes are unmanaged and cannot be invested in directly.

The bottom line

On rainy, snowy, or bad weather days you will often hear people say “the fish aren't biting today” but Jeff has had his best days during those times. Nature and investing do not follow our little rules. As you have no doubt told your clients: the key to success is coming up with a good plan and sticking to it.