We say no to potential investments all the time. Sometimes we don't know enough to value the asset with a high degree of confidence. Other times the asset simply isn't cheap enough.
We are very disciplined when it comes to our purchase price for two simple reasons. First, once you buy a stock, you can never change your purchase price. You will be quoted an almost infinite number of prices to sell it, but your purchase price is locked in forever. Since stocks bounce around (note the large range between a typical 52 week high and low), buying early can lock in a price that is then eclipsed by lower prices.
Second, since losses and gains exist on the same sliding scale, buying low not only minimizes potential losses, it simultaneously opens up a large avenue for future gains.
The catch is that great deals in the stock market are rare. Hence, most of the time we say no to what is presented to us. This however, is taboo to the fund management industry. The industry suffers from the "do something" problem. It receives customer money, the customer says "do something," and even if there is nothing great to do, the manager feels pressure to act, and consequently buys assets at what he knows are mediocre prices.
At Quarterpoint, a key part of our job description is inaction. The more we say no and the more patient we are, the more we save our clients from mediocrity. If we have success, we will owe it not only to the investments we made, but just as much to the investments we didn't make.
Of course, there is the risk we will be too cautious and miss what in hindsight were good opportunities. However, we would rather err on the side of caution. It is our solemn responsibility to treat your assets with the utmost care.
It is not just money, it is your future quality of life we are responsible for. This mandate often requires us to "say no" as we hunt for the safest and best investments.
Best times to invest can feel awful
The best times to invest often feel like the worst times to invest. Fact. The best investing occurs when prices are low - say, the depths of a stock market crash. Sentiment is overwhelmingly negative during those times because people have lost all sorts of money and think the world might end, but as investors, this is when we get excited.
It is our responsibility to educate our clients that good things happen in the worst of times because the opportunity to buy low exists. On the other hand, when times are rosy and prices are high, future returns will likely be average or subpar.