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#TBT "When the stockmarket rocks your boat, don't jump out"

A year after working here, Nancy decided it was the perfect time to hire a construction crew to tear a hole in the wall, creating the space for another office room. Ryder moved his desk out of the office we were sharing and into the newly opened space, and I excitedly reorganized the shelves in my newly private office.

 

In the process, I came across a small book unrelated (or so I thought at the time) to investing: the Annapolis School of Sailing Primer.

 

 

Since I've yet to have any control of my curiosity, I opened the book and inside I discovered an even more unexpected find: Nancy's diploma from the school.

 

 

I had only been working here for one year, but I had taken four classes in finance from Nancy in undergraduate and graduate coursework in college... Never had the subject of sailing come up!

 

I called Ryder into the room to ask if he had known that Nancy could sail. This was news to him as well. 

 

Nancy walked by the door, and we told her what I'd discovered. 

 

I've been here over three years now and am still letting my curiosity roam free and unchecked, and I've come full circle to uncover this column Nancy wrote at the end of 1996 in which she tells of her two-day course on sailing down in Florida and how it reminded her quite a bit of investing. And it seems that it may be a good thing to have an advisor who also knows how to sail. Enjoy! 

 

When the stockmarket rocks your boat, don't jump out

 

I bought a sailboat. I didn't actually know how to sail the thing, I just thought it sounded like a lot of fun. A friend suggested I enroll in a two day introductory sailing course at the Annapolis School of Sailing in St. Petersburg, Fla.

 

And that is where I have been the last few days. Learning to sail, not on a reservoir, but on Tampa Bay in 20 knot winds and choppy seas.

 

The instructor looked like an old salt, with his tousled hair and his weathered face. Bill told us he had no memory of a time when he didn't know how to sail. That, and his calm, jovial nature gave me the confidence to climb in the boat and take to the water. I didn't know what I was doing, but Bill assured me he would take care of me.

 

My boat sits in a slip at the reservoir. It was there when I first saw it, and I've never actually seen the bottom of it.

 

Our first instruction in the sailing course was to study the construction of the boat. Bill held up a model and pointed out the parts of the boat. The boat we would be sailing, along with the one I now own, are both keel boats. That is, there is a fin-like structure on the bottom of the boat which gives it stability. This, along with its flotation devices, means this boat is virtually unsinkable.

 

After this presentation, we headed to the boat and out into the bay. I couldn't believe we were learning to sail in such weather. We would sail along nicely and then hit a gust of wind that caused the boat to "heel." Heeling is when the boat tips on its side and takes off like a rocket. And it terrified me! My tendency was to overreact and jerk the tiller to get away from the gust. But Bill would look at me and say very calmy, "You're going to be OK. The boat won't capsize." I kept thinking about that unseen keel and the stability it offered in order to keep my emotions from causing me to panic. After all, it FELT like we were going to sink.

 

By the end of the second day, I had become accustomed to the heeling that occurred with those wind gusts. In fact, I liked the sensation of chasing the wind. Bill said if you wanted to learn to sail, you just have to stay in the boat.

 

 

In the last few weeks, there have been some gusts in the market, and the waves have been a bit choppy. The last two years have been easy sailing with stocks going up, up, up. But then we had a gust. Alan Greenspan makes statements saying the market is too high. The market starts "heeling," losing as much as 124 points at one time during the day, and investors panic, certain the ship is going down.

 

We've gained back some of that loss, but there will be other gusts. The next may be from a Federal Reserve governor, hinting at a need for an interest rate increase.

 

While I am not suggesting the market is unsinkable, I do believe there are some built-in keels that offer stability. Things like market controls, institutional investors, and even our own government. Gusts come along, and the market corrects or adjusts. It's all part of investing in stocks. The important thing is to avoid that panic which causes you to jump out of the boat.

 

How do you do that? Well, you educate yourself about stock investing. Study history, but expect the failure to be different. 

 

You may want to find an "old salt" with experience in stock investing. That way, when the wind starts to kick up, you'll have someone who can assure you that everything will be OK. Look for an advisor who knows how to stick to a discipline, even in a storm.

 

The next thing you want to do is use those market adjustments to your advantage. Much of the selling going on right now is due to end-of-year tax loss selling. People are looking for ways to minimize their tax bills. Don't sell those stocks that are good investments and offer good future returns, but look at the ones that have been lackluster performers. You may want to go ahead and rid yourself of the dead weight, use the loss for tax purposes, and put your investment dollars to better use.

 

Which brings up the last thing. When other investors panic and drive the market down, look on it as a buying opportunity. You'll find you like the sensation of chasing the wind, grabbing up bargains while other investors grab for the lifeboat.

 

--Nancy Lottridge Anderson, Ph.D., CFA, Mississippi Business Journal, December 16, 1996

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