“Those who stay will be champions…” Those are the great words from legendary Michigan Football coach Bo Schembechler. As a young man, I heard those words a lot. I was a distance runner at the University Michigan, competing on the track and cross-country teams. Back then, it was always in the context of working hard, persevering, and outlasting your competition. However, as I graduated from college and entered the real world, those words took on new meaning. It wasn’t always the most talented athlete or the smartest kid in class that had the most success, it was the one who worked the hardest and was willing to make sacrifices when others weren’t.

Investing is undoubtedly an activity where patience and perseverance are rewarded. The world is full of great investment managers and many time-tested investment strategies. Many people hire portfolio managers with great track records, invest in a successful mutual fund, or adhere to an investment strategy that they believe has a high probability of outperforming the market. However, most of these folks will never get the benefit of their own good decisions. Why? Because they’ll bail out too early or change course when they don’t have instant success. Dr. Derek Horstmeyer of Georgetown University writes about how investor returns in mutual funds are actually significantly lower than the actual returns of the fund itself. How can this be? It’s because investors tend to bail out after a bad quarter, miss the rebound, and then buy back in near the top. For example, in 2008 and 2009, the average mutual fund finished this 2-year period down -4.5% while the average investor return was -17.5%. In this case, people strayed from their plan. They let fear and other emotions guide their decision-making.

One of the most popular investment strategies out there is the concept of value investing. Value investing involves buying stocks that trade at low valuation ratios, such as the price-to-earnings or price-to-book ratio. The concept is completely rational – you want to buy something when it’s cheap, so that the assets will appreciate more down the road. Over time, this value strategy is said to have the ability to produce superior returns. However, the volatility of returns will prevent most people from getting the long-term benefits of this investment style. Just look at the past several years of returns for the Vanguard Select Value Fund (not an offer to buy or sell a security or an investment recommendation):

2013	2014	2015	2016	2017
42.04%	6.36%	-3.80%	16.34%	19.51%

Here’s what would likely happen. After an investor notices the 42% return in 2013, several behavioral biases kick in – recency bias and anchoring bias. This great one-year return anchors the investor’s expectations as to what they can expect, and they assign more significance to this one-year period than they do to the more accurate 3, 5, and 10-year periods. So they invest at the beginning of 2014. Year one: They get 6%, not terrible but nowhere near that 40+% that they were expecting. They become impatient. Year two: -3%! A negative return? That’s unacceptable! Most folks would pull their money and look for a new strategy at the exact wrong time. The following two years would produce strong annual returns between 15%-20%. Perhaps the investor notices this. Regret sets in, and all of a sudden they get a serious case of FOMO (fear of missing out). They dive back into the fund in 2018. The return for the year: -19.73%. At this point, the investor gives up, throws in the towel, and invests all their money in CDs yielding 2%.

That gets us back to the famous quote, “Those who stay will be champions…” Successful investment strategies take time. Those who are patient, well thought out, and have a process and a plan will excel over time as long as they maintain their discipline and stick to their strategy. Those who look for shortcuts or bail out at the first sign of danger will likely be left with poor returns and a sense of regret.