What to Do When Your Investments are Not Working Out

What to doWhen we invest, we naturally hope to end every year wealthier than the start of it and to beat the overall stock market in the process. Why else would we want to spend precious time and effort to study individual companies for investment if we can just achieve market-like returns with minimal effort by buying a Straits Times Index (SGX: ^STI) tracker like the Nikko Asset Management Singapore STI ETF (SGX: G3B) or SPDR STI ETF (SGX: ES3) ?

But, regardless of how good an investment strategy or philosophy is, there will be stretches of market-underperformance or even losses. How should individual investors deal with that?

Meet the residents of Graham and Doddsville

Warren Buffett, one of the most well-known stock market investors over the last few decades, gave a speech titled The Superinvestors of Graham and Doddsville in 1984. In it, he detailed the performances of nine investment funds that had handily beaten the stock market prior to 1984 for at least a decade or more.

There were two interesting aspects of the results that individual investors should take note of:

  1. All nine investment funds had an investing philosophy that sprung from the roots of Benjamin Graham’s value investing philosophy. Buffett wrote that the group had a ‘common intellectual patriarch, Benjamin Graham’.


  1. These investors suffered periods of losses and market-underperformance, and sometimes in long stretches. The most striking example was Bill Ruane’s Sequoia Fund, which recorded five consecutive years of losing to the market from 1970 to 1974. The fund also suffered a total loss of 36% in two years from 1973 to 1974. Despite all this, the fund had an accumulative 775.3% return from 1970 to 1984, almost three times that of the US stock market’s.

What the Graham and Doddsville residents can teach us

As individual investors, we might sometimes get disheartened when we see our stock portfolio losing to the market or even making losses. When this happens, the results of the group from Graham and Doddsville can provide us with instructive lessons.

1. The group had an intellectual framework for investing that they knew could increase the odds of their success greatly. Similarly, we should reflect on our investment strategy to see if there is a clear, logical thinking behind it that can increase our odds of success in the stock market.

Do you see that in your investment philosophy? If not, perhaps it’s time to dig into investing classics like Peter Lynch’s One Up on Wall Street, Philip Fisher’s Common Stocks and Uncommon Profits, or Benjamin Graham’s The Intelligent Investor to find an investing framework that suits you.

2. If you know your investment philosophy is one that works but it has somehow not worked out as you’ll like, perhaps the best thing to do would be to persevere. Ruane never wavered from his value-oriented investing discipline and led the fund to great success eventually.

There is no miracle drug in investing that can provide positive, market-beating returns without fail like clock-work. The best thing individual investors like me and you can do to achieve better investing results over the long run, is to find an investing strategy that works – based on a clear logical foundation, and have the discipline and patience to stick with it even when it seems like it’s not working over the short term.

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The Motley Fool’s purpose is to help the world invest, better.   The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Contributor Chong Ser Jing doesn’t own shares in any companies mentioned.