This article originally published in The Northern Daily Leader on 9 November 2013.
Those of you who are into horses may well have heard of Pat Parelli. For those that haven’t, Pat runs a popular horse training program based on the principles of natural horsemanship. Pat is quite a character, putting on entertaining live shows where he demonstrates his approach to training horses. Quite a few years ago, circumstances led to me attending one of his shows in Melbourne. At the time I was the ‘owner’ of a stock horse called Didgeridoo, who believed he was the boss and I was his servant (he was right). I had planned to take Didgeridoo to one of Pat’s shows, where he would use his training techniques on a select group of attendee’s horses. I had a vain hope that a few hours with one of the world’s best trainers would teach Didgeridoo not to try and physically assault me every time I came within kicking distance. But when I showed Didgeridoo the brochure, he looked pointedly at the bite mark on my arm, shook his head ever so slightly, and I knew I would be going to the show alone. Nonetheless, the show itself was very interesting, but what stayed with me many years later was a memorable quote from Pat which was ‘Don’t just do something, sit there!’. What he was saying of course, was that too many people jumped on a horse’s back and started fiddling, shifting or moving around. His advice was to just sit there; do too little rather than too much. A bit like toppings on a pizza, sometimes less is more.
In some ways, Pat’s admonition to just ‘sit there’ can be applied to our approach to investing. In many cases, it’s what we don’t do which is more important than what we do ‘do’. It’s the decision not to invest in HIH; not to invest in Babcock and Brown; not to invest in ABC Learning, unlisted property funds, collateralised debt obligations or any other of the many thousands of investments which turn out to be near or complete failures. This is what I see as our central role in managing our client’s money – avoiding bad investment decisions. One or two bad investment decisions can more than offset the benefits of many great investment decisions. Appropriate investment advice should focus first on not losing your money, with a secondary goal of making you money. Even the world’s most successful investor, Warren Buffett, follows this rule, advising investors to follow two rules to successful investing, “Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.”. Simple rules to investing which we follow and recommend you do too.