Lessons from Musashi

By: Matt Garrott
By: Matt Garrott

What is the most important action an investor can take? Sometimes it is taking no action at all.  We were recently pitched a hot new hedge fund.  It is run by an eclectic genius (aren’t they all?), has good performance, and the client base is of such a pedigree that they’re part of the marketing material.  We passed.  Why?  There were several glaring red flags, but it also failed the most important question: would this investment be additive to a diversified portfolio?  In other words, would adding this investment get our clients to their financial goals faster or with less risk?

This reminds me of an old story:

There was a great swordsman in Feudal Japan named Musashi. He was taking a ferry between two islands when a samurai challenged him to a duel.  Musashi declined, but the samurai hassled him until he finally agreed.  Musashi suggested that instead of dueling on the crowded ferry, they spar on an upcoming sand bar.  When the ferry got close enough, the samurai leaped onto the sandbar and drew his sword.  He turned around to see the ferry floating away, with Musashi onboard.  Musashi defeated the samurai without drawing his sword.

Doing something isn’t always the solution. Investors who keep their end goals in mind have a head start over investors who allow every shiny new strategy to distract them.  We often see new investment strategies take off with great fanfare only to tumble after a year or two of actual performance.  We keep an open mind to new ideas, but the markets aren’t something that need to be wrangled into submission.  Investors do not get bonus points for using flashy or complicated strategies.  By not participating, we leave these strategies on the sandbar so we can continue our journey in peace.

Fairway Scorecard 7-31-2016