Investing takes grit

Investing Takes ‘Grit’

If there’s one thing the extended bull market run has taught us, it’s that investing takes “grit.” Often dubbed “the most hated bull market of all time,” as reported by the media for many years now.

Grit is about having the same goal for a very long time, and sticking to it despite setbacks or failures. Researchers have determined that it can be one of the greatest predictors of an individual’s long-term success, even more important than IQ or wealth.1

As investors, how do we maintain grit in investing?

Savvy investors start by having a financial plan in place. Portfolios are created with personal objectives in mind, to meet an investor’s needs over the longer term. Each element has been selected to serve a purpose, in both up and down markets.

Then, they stick to the plan. This involves focusing less on short-term news and more on end goals. In good times, it means maintaining a realistic approach to returns and not chasing strong market performance. In difficult times, it often means tuning out the noise and continuing to save and invest.

Where are the economy and the markets headed?

This is not a normal cycle left to run by itself. It has been largely supported by the actions of central banks. Over the summer, while the Bank of Canada kept interest rates on hold, the U.S. Federal Reserve lowered its overnight rate for the first time in over a decade. Will this help to keep recessionary concerns at bay?

Of course, the economic cycle is immutable and there will be inevitable ups and downs. But there is often little value in trying to predict the markets or economy: your plan’s overall success isn’t dependent on calling the top of any cycle. Many investing mistakes come from trying to run a marathon in an hour. As the saying goes: “More money has been lost preparing for corrections than has been lost in corrections themselves.”

Modern capital markets have always adjusted and progressed. It is a good reminder that over the past 25 years, the equity market went up by 393 percent, in spite of two recessions collectively lasting 32 months and three bear markets totalling 38 months — two of which saw market drops of over 40 percent.2 We may forget that bad news almost never supersedes the power of true grit.

The investing journey is a long one, and an investor’s ability to keep focused can be one of the keys to longer-term success. And, it all starts with a little grit.

1 “Grit: The Power of Passion & Perseverance,” Angela Duckworth, 2016.
2 S&P/TSX Composite Index, 8/94 to 8/19.