A casual chat about music and Behavioral Finance by Michael Antonelli and John Taft.
Mike: John, do you love Yacht Rock and all the smooth, silky songs from the late 70s, early 80s?
John:What the heck is Yacht Rock?
Mike: Well my friend, Yacht Rock isn't an official musical term so there's no strict definition of what qualifies. It is generally defined as the kind of music that everyone would love hearing if they were out with friends on a boat and the sun was setting and warm breezes were wafting over you as you sipped on cool, crisp chardonnay. (IGN did a decent job explaining it in this article, click here). The kind of songs that come to mind are classics like "Sailing" by Christopher Cross, or "Brandy" by Looking Glass, or the quintessential Yacht Rock song "What a Fool Believes" by Michael McDonald.
Michael McDonald was a legend in the late 70s, early 80s and is the undisputed king of Yacht Rock. Between his work with the Doobie Brothers and his solo performances McDonald has come to epitomize a time when music wasn't produced on a computer, it was hand crafted in studios and jam sessions and enjoyed on tapes and records everywhere.
John: I'm not a big sailor. And I don't particularly like chardonnay. And I can't figure out what your love of mellow elevator songs from the late 70s has to do with me? Or, for that matter, with the markets, investing and behavioral finance, which is supposed to be the topic of these blogs.
Mike: Allow me to tie this together for you. "What a Fool Believes" is not only a top 10 song of ALL TIME, it also describes a number of things individual investors should remember in turbulent times like these.
A fool believes they can time the market: You've seen these stats a million times but if you missed the best 25 days from 1990 to 2018 your return would look no different than that of a 5 yr Treasury bond. Time in the market is better than timing the market. You can't do it. Don't even try.
A fool believes that daily noise matters: I promise you there's an inverse correlation between time spent watching financial news and your investment performance. On a day to day basis, the market is a coin flip to be positive or negative but, as you extend the time horizon, the odds of success move in your favor. Try not to get distracted by noisy headlines and a daily drumbeat of TV "experts" who know nothing about your personal goals and risk tolerance.
A fool believes it's easy to go it alone: Bull markets make everyone feel like an investing genius, you can make bad decisions and the market bails you out. The past ten years have been some of the best in history and while no one knows what the future holds, having someone by your side if things get rough will be extremely valuable.
John: I'm starting to tack with the breeze (to use a sailing term). Here are two things investors should remember:
A fool believes they can get to where they want to go without a map. Disciplined financial planning is the key to identifying and achieving one's lifetime goals. As the saying goes, "If you don't know where you're going, any path will get you there."
A fool believes added returns come without added risk. In this low-interest-rate environment, it's easy to be tempted by the prospect of 7% of 8% yields. Just remember, those kinds of returns are likely to come with substantially higher risks, particularly at a time when stocks and bonds are fully valued.
Mike: Let me hit you with one more before we dock this boat.
A fool believes that investing is more important than personal finance (inspired by my friend Morgan Housel): Control what you can control. In fact obsess over it. You can control your savings and spending but you cannot control what the stock market does. Like my blogging partner said, don't chase risk in the market. Instead focus on your side of the equation where you can get immense leverage. Don't neglect the things you have DIRECT control over.
Well John, I hope my love of Yacht Rock convinced you to give it a go. Not only does the music inspire me but there's lessons to be learned from its lyrics because "it's not far down to paradise, at least it's not for me. If the wind is right you can sail away, find serenity".
If you enjoyed the conversation, you should check out Mike and John's discussion about the most important question Baird's wealth management clients ask.
You can follow John's Blog "Finance for the Greater Good" here: https://johntaft.rwbaird.com/