So, this story turned up on my Facebook feed this morning and I thought it’s an excellent example of how life sometimes requires struggle before you see the reward. The story is about how the Philadephia 76ers basketball team is starting to see the results of a strategy that was started some years back. The strategy consisted of being deliberately bad for a few years in order to get better players that would be around for the longer haul. Unfortunately, the owners of the team couldn’t wait long enough to see the results and forced the general manager in charge of the strategy out. I’m not an expert on basketball and there might have been a less painful way to turn a team around but the one thing you can’t argue is that the strategy didn’t work because going by the 76ers current record, things are certainly much better than before.

What I think is important is that the above also applies to many areas of life. Some months back I read Paulo Coelho’s The Alchemist for the first time and the book tells a simple tale of never giving up and having faith in the journey that you have to take in order to reach your dreams. While the story doesn’t reflect the complexities of real life, the struggles that the character goes through for practically the entire tale does provide a cautionary tale for anyone who dreams of success- that the path to success is often filled with numerous false starts and it is a long and arduous journey not for the faint of heart.

Since humans develop habits by the way of a cue, routine and feedback, savings money is a pretty easy thing to do. Money that comes in from a paycheck (the cue) can be channeled to an account used for investing (the routine) and as you see that amount get bigger, you feel a sense of satisfaction (the feedback which is positive).

However, things can screw up when it comes to investing. After putting money into a carefully selected invested, the value of the investment could decrease. This leads to the investor questioning his or her ability when it may be no fault of theirs if markets tank in general. It may also not be of concern if the stock tanks in the short term due to unnecessary pessimism. The bigger question is, will the investor be able to stomach a decline in value of their holdings?

This is where I think it’s absolutely necessary to have an investment process which should be able to do a few things. One, it should help an investor enter or exit the market during periods of extreme valuation. Two, it should help investors select securities (equities or bonds) which have a more than fair chance of surviving in the long-run. Three, results should be evaluated over a period of at least 3-5 years and certainly not just over a year or two.

Having said that, sometimes we also need a little faith that we’re doing the right thing. Trust the process.

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