I’m hope you’re not searching for such an approach, because it’s not out there — nor will there ever be one that can make money on a consistent basis without having some sort of drawdown. If you know of any investor searching for such an approach who truly believes that someone out there really has the Holy Grail of consistent profits, I suggest that you have him or her pay a visit to Butner, North Carolina. That’s where one will find prisoner #61727-054, Bernie Madoff.
PICTURE OF MADOFF
Madoff operated what is considered to be the largest financial fraud in U.S. history. Over a period of 20-plus years he swindled thousands of investors (many of them sophisticated investors and very successful celebrities) out of $65 billion.
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He didn’t do it by promising 1,000% returns. Instead, he executed his plan by fabricating a track record that was very consistent and barely showed any down periods. He sold his investors on the ability to consistently, through every type of market environment, produce winning months for long periods of time.
In fact, he reported only four losing months over 14 years! Intelligent and sophisticated investors wanted to believe that it was possible. They wanted to believe that someone had discovered a strategy that produced gains month after month. Along with Santa Claus and the Easter Bunny, there’s no such thing.
Consistency is something no one can promise. At times a value investing approach will be totally out of sync with the market. The stocks we buy will go down, and the stocks we sell will continue to go higher. That’s normal and nothing to get excited about. The only thing any approach can guarantee
— is that over the long term there will be periods of disappointment. This separates successful investors from everyone else. Most investors will bounce around from one approach to another when the approach they’re using goes through a rough patch. Instead of building their net worth, they actively do everything possible to continuously lose money.
For an investing approach to be considered sound, Ben Graham said that it needs to be:
- Based on sound logic,
- Be simple to apply, and
- Have an excellent track record.
For those who stick with an approach that is based on logic, is simple to apply, and has an excellent track record — the world is their oyster.
After 30 years of investing, I have yet to find an approach that is better than buying stocks of businesses that are trading for less than their underlying worth. If you know of one, please get in touch with me ASAP.