Published On: August 27, 2021
Written by: Ben Atwater and Matt Malick
Incrementalism is about lowering expectations, understanding that progress takes time and that success is gradual.
Often when telling someone we manage investments their first inquiry is about a hot stock or what the market will do this year. Frankly, we don’t know any hot stocks, nor do we know where the market is headed in the short-term. Instead, successful investing is about taking small, unglamorous, methodical, and contrarian steps with as much consistency as possible.
Billionaire investor Charlie Munger’s first rule of compounding is to never interrupt it unnecessarily. Compounding works over long periods of time. To prematurely interrupt it by market timing or reducing your savings may forgo significant upside.
The public is attracted to boastful prognostications about how the market is going to boom or bust, or to heroic solutions to problems or opportunities.
We’ve seen many examples of hucksters concocting a story about how to cope with runaway inflation, the collapse of the dollar, the “guaranteed” protection of principal, the inevitable crash of the stock or bond market, etc.
Conversely, we see promises of quick riches by investing in novel collectibles, unprofitable companies or even future ideas that do not even yet exist.
Invariably, these emotion-charged, all-or-nothing approaches end in poor returns (at best) and major losses (at worst).
We, as incrementalists, on the other hand, look to face problems before they occur versus being reactionary to a crisis. We want to take a long-term view and work to reduce avoidable issues, while accepting that we can’t anticipate or prevent all problems. Because clients’ savings and retirement are propositions that require relationships lasting years, we know that slow-and-steady is the best philosophy.
The reason this topic is vital right now is because as asset prices move ever higher, speculation further ramps up and greed abounds.
Timing the market continues to be a fool’s errand. But we continue to advocate an incremental approach and goal-based asset allocation with appropriate equity and high-quality bond exposure to prepare for an unpredictable future and weather both bull and bear markets.
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