Connecting Quarterly: 3rd Quarter 2015

Dear Friends,

As the parent of only one child, and a 5-year old at that, I don’t feel particularly qualified to provide advice on the topic of parenting.  But 64 months and counting of parenting has left a few impressions on me, and one of them in particular seems relevant to successful investing.

As anyone who has raised children knows, parenting is a constant roller-coaster ride of emotions.  One minute, your son or daughter performs an amazing act, and you’re on top of the world; the next they’ve frustrated you beyond the point that you ever thought a person, much less one that’s 45 inches tall and 45 pounds, ever could.  During those maddening moments, we parents often find empathy from our spouses and friends who are walking the same path as us.  But grandparents see the world through a totally different lens.

When you ask a parent about their child, the response you get can be unpredictable.  It’s usually driven by whether the child painted a beautiful picture in art class or damaged the family car that day.  But ask a grandparent about their grandchild, and you always seem to get a gleaming response filled with accolades, with nary a word of negativity or frustration.  Why is it that grandparents always see their grandchildren through such rose-colored glasses?

It seems to me that one reason is simply their frequency of exposure.  While parents are deeply submerged in the daily gyrations of their child’s emotions and activities, from potty-training or dating, the grandparent/grandchild interaction is typically much less frequent and often related to entertaining activities that bring out the best in kids.  The pride associated with sporadicbaseball games, dance recitals and science fairs can last a long time if you don’t also have to deal with the tearful resistance to “clean up time” later that same day.

Like a child, the financial markets can be volatile on a short-term basis.  The chart below shows the returns of the U.S. stock market on a month-to-month basis back to 1926.  Investors who intently watch their portfolio with this frequency soon feel like an exhausted parent riding the waves of their child’s actions and emotions.

But unlike parents, who by nature must cope with the daily volatility that naturally occurs in their beloved children, as investors we choose whether we’d like our investing experience to feel like that of a frustrated, fatigued parent, or alternatively, that of a beaming, prideful grandparent.  We can make this choice simply by deciding how often we look at the value of our investments.

If we measure an investor’s happiness by the experience of a positive return, the investor who tracks his or her stocks monthly probably feels worried and unhappy almost 50% of the time.  But if that investor chooses to only look at their portfolio once a year, the graphic below tells us their likelihood of happiness (a positive return) increases to about 75%.

If the investor can find enough discipline and other priorities in life to review his or her stock portfolio only once every 10 years, history tells us their investment experience is likely to be akin to a prideful grandparent, gushing about an angelic grandchild:

The next time you’re tempted to look at your computer or smartphone and analyze your portfolio’s values in detail, remember that the “exposure frequency” is something we investors control, and it can impact our feelings about our wealth.  The less frequently we look, the more likely we are to feel happy about our investments.  So do yourself a favor:  Delete the “market tracker” app from your phone, don’t login to your mutual fund website and turn off CNBC.  You and your family will probably be happier as a result.



Chuck Carroll, CFA, CAIA

Chief Investment Officer

TFO Phoenix, Inc.


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This letter is a publication of TFO Phoenix, Inc. It should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Content should not be viewed as personalized investment advice.

TFO Phoenix, Inc. is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the advisor has attained a particular level of skill or ability.

Past performance may not be indicative of future results. All investment strategies have the potential for profit or loss. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for an investor’s portfolio. There are no assurances that an investor’s portfolio will match or outperform any particular benchmark. Stock market returns do not represent the performance of TFO Phoenix, Inc., or any of its clients, and do not reflect the impact of advisory fees and expenses on these results.