Knowing yourself is the first and most important step on the path to investing success. But once you’ve developed your own investment philosophy it’s good to keep an open mind and look for refinements. With that in mind I encourage you to step outside of yourself for a minute and walk with me.

I’m an avid gardener and have been since I was a kid. After twenty odd years of investing and reading copious tomes of investing wisdom I still believe the core of investing is the same as gardening. This is perhaps best illustrated by the Peter Sellers classic Being There.
His simplistic, serious sounding utterances, which mostly concern the garden, are interpreted as allegorical statements of deep wisdom and knowledge regarding business matters and the current state of the economy in America.

It is twenty five years since I first saw Being There. The association it formed for me between gardening and investing laid the foundation for my limited investing success. On top of that it’s blooming funny.

I was reminded of this today when I read the Hussman’s excellent weekly commentary. Tending Seeds – Reacting, Responding, Planting, and Watering. It’s been a long time since I linked to Hussman and maybe I said I wouldn’t any more, but this week is a must read.

“Consciousness is said to be a field; a plot of land in which every kind of seed has been planted – seeds of suffering, happiness, joy, sorrow, fear, anger, and hope. The quality of our life depends on which of these seeds we water. The practice of mindfulness is to recognize each seed as it sprouts, and to water the most wholesome seeds whenever possible.” Thich Nhat Hanh

“But there are all sorts of other seeds to water. An investor who waters the seed of curiosity will not be content with investment platitudes and will stare at lots of data to figure out what actually works in the markets, and what the pitfalls are. An investor who waters the seed of discipline will emphasize consistency and persistence over one-off decisions and attempts to “make a killing” on a particular trade. Tending the seed of patience, on the other hand, can be either a help or a hindrance, depending on whether it is coupled with sober analysis or instead with blind hope. Patience, coupled with discipline and analytical curiosity, is not a bad combination of seeds from my perspective.” John Hussman

Hussman also linked to a 2003 piece of his that I really enjoyed, Forces of Habit.

“If an investor consistently takes positions based on forecasts, and changes those positions only when the market proves those forecasts wrong, that investor’s life will predictably be dominated by hope, uncertainty, disappointment, reaction and frustration. If an investor constantly takes positions by responding to opportunities and conditions as they develop, with equanimity to what will happen next, making a habit of purchasing favorable value or early strength, and a similar habit of selling overvalue and early weakness, that investor’s life will most probably be dominated by a sense of peace and control. Though it is not obvious which investor will have better results, my own opinion on that should be fairly clear.

This doesn’t mean that an investor who responds – rather than reacts – will know what will happen next. Rather, it means that this investor will be able to accept what happens next, knowing how to respond whatever the outcome. The point is to live in reality, and to take the next action from where one stands, without ignoring inconvenient aspects of reality in the hope of justifying one’s position, and without wishing for the starting point to be somewhere else. The greatest source of human frustration is the desire for reality to be something other than it is.”

My investment strategy is different from Hussmans, but I see core similarities. For me emotional and psychological control are more important than analysis. I’m not sure, but Hussman may say emotional and psychological control are achieved through analysis.

Doing the right thing is more important than being right. Many people have been both right and bankrupt, often due to timing and leverage. I’ve always viewed arrogance as one of  the greatest human failings, in markets arrogance is the path to ultimate failure. I need to repeat a Hussman line; “making a habit of purchasing favorable value or early strength, and a similar habit of selling overvalue and early weakness.” Yes buy low sell high, it is that simple, but the majority of investors fail with that most basic step.

My 50/150 approach is a core element in maintaining my sense of peace of control. Another plank in my footbridge from fear and frustration to unperturbed equanimity is the awareness that I am wrong 30-40% of the time. Being wrong is no big deal, staying wrong is. The third plank is time. I know that over time through the consistent application and refinement of my investing strategy I will achieve my goals.

Everything is an opportunity is my fourth plank; as I am a net buyer of equities I see down years as opportunities to buy at a discount. Mistakes are an opportunity to learn. Unrelated, but an important plank to me; a love of money is millstone around your neck that will rip you from your bridge. I know some of these are time worn platitudes. I know the majority of investors simply seek a Magic Formula or hot tip to their riches. I hope you know which I think is more worthwhile.

I’ll leave you with a timely quote from Being There.

President “Bobby”: Mr. Gardner, do you agree with Ben, or do you think that we can stimulate growth through temporary incentives?
[Long pause]
Chance the Gardener: As long as the roots are not severed, all is well. And all will be well in the garden.
PB: In the garden.
CtG: Yes. In the garden, growth has it seasons. First comes spring and summer, but then we have fall and winter. And then we get spring and summer again.
PB: Spring and summer.
CtG: Yes.
PB: Then fall and winter.
CtG: Yes.
Benjamin Rand: I think what our insightful young friend is saying is that we welcome the inevitable seasons of nature, but we’re upset by the seasons of our economy.
CtG: Yes! There will be growth in the spring!
BR: Hmm!
CtG: Hmm!
PB: Hm. Well, Mr. Gardner, I must admit that is one of the most refreshing and optimistic statements I’ve heard in a very, very long time.
[Benjamin Rand applauds]
PB“: I admire your good, solid sense. That’s precisely what we lack on Capitol Hill.

More on My Investment Philosophy

Why Don’t I Know The Answers
Fusion 101: Know yourself
Wealth and Happiness
Shoot First
Still want more? Read on

Related posts:

1. 21 Days to Becoming a Better Investor
2. Hussman Funds Weekly Market Comment