Liz Ann Sonders is celebrating her 35th year on Wall Street.
That’s caused the Managing Director & Chief Investment Strategist at Charles Schwab & Co. to reflect on her experiences, the people who influenced her the most, and their nuggets of investment wisdom that inform her approach today.
Here are some excerpts from an article the highly-respected Sonders wrote about her time on the Street and what she’s learned.
by Liz Ann Sonders
It was 35 years ago this month that I began my career on Wall Street.
In thinking about those three-and-a-half decades, I decided to shift tack with today’s report and ask readers to indulge me as I ruminate about what I’ve learned during these decades.
I am often asked about the influences that have shaped me and my career; and they take many forms—including the iconic investors for whom I’ve worked, the memorable books and research I’ve pored over countless times, and the most valuable lessons they’ve imparted along the way.
My favourite quip ever said about the stock market was by Sir John Templeton.
I had the great pleasure of meeting John many years ago when he appeared as a guest on Wall $treet Week With Louis Rukeyser (more on that below), when I was a panelist.
He perfectly summed up what really drives the stock market—notably not using a single word that isn’t directly tied to investors’ emotional state:
“Bull markets are born on pessimism, they grow on skepticism, they mature on optimism and they die on euphoria.”
Some of the messages imbedded in Templeton’s most famous quote are even more important to ponder given today’s lofty valuations and not-so-subtle signs of investor complacency.
There is nothing wrong with rejoicing in bull markets; but we must always remember that they do eventually end, so heed the messages from some of the greats of finance.
Quintessential investing books
Throughout those early years in my career, I read many a classic investing tome written by true legends.
I try to pick each of them up from time to time to separate myself from the often-manic noise of the day-to-day reading and research with which we’re all bombarded. Though not an exhaustive list, they include:
- A Random Walk Down Wall Street by Burton G. Malkiel, first published in 1973
- The Intelligent Investor by Benjamin Graham, first published in 1949
- The Money Game by Adam Smith (pseudonym for George Goodman), first published in 1976
- Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay, first published in 1841
- Against the Gods by Peter L. Bernstein, first published in 1996
Chuck has had an extraordinary influence on me personally, and my career. His optimism is infectious, and his character unrivalled in our business.
One of our shared beliefs is the inability to time markets with any precision. Too many investors believe the key to success is knowing what’s going to happen in the market, and then positioning accordingly.
But the reality is that it’s not what we know that makes us successful investors; it’s what we do.
In his book Invested, Chuck wrote:
“If I had learned anything after years in the business, it was how little I could ever know about what the market would do tomorrow.”
I’ve written a number of reports recently that detail a growing set of risks with which the market is facing.
They include the aforementioned speculative froth at various points this year—concentrated in a rotating crop of non-traditional market segments, like meme stocks, SPACs, non-profitable ‘tech’ stocks, cryptocurrencies, IPOs, etc.
Drawdowns this year in those areas have ranged from -30% to -80%. Perhaps because many of these “micro bubbles” sit outside traditional benchmark indexes like the S&P 500 helps explain the relative resiliency of the market.
Other risks include stretched valuations; monetary and fiscal policy concerns; slowing growth and not-yet-transitory inflation; and the recent/ongoing deterioration in the stock market’s “internals” (breadth).
In fact, for all the cheering about the S&P 500 not having had even a 5% drawdown this year; it might surprise readers to know that 86% of the index’s constituents have had at least a 10% correction this year.
Investors should be cognizant of heightened risks. Heed the risk/reward benefits of diversification (across and within asset classes) and rebalancing.
Try to divine whether there is a gap between your financial risk tolerance and your emotional risk tolerance. Those gaps can be surprisingly wide and often only discovered during tumultuous market periods.
“Those who do not remember the past are condemned to repeat it.”
Related stories: Learning the Hard Way Investing is Not a Game