b'\\u201cWinter is coming! Winter is coming! Winter is coming!\\u201d Is this a cry to get all of your money out of the stock market because the end is near?
No, no, no, it absolutely is not!
If you watch the hit series Game of Thrones you know winter has been highly anticipated throughout the six seasons it\\u2019s been running.\\xa0 You may also know that you want to be on the right side of the wall for fear of the deathly \\u201cWhite Walkers\\u201d, and you may want to begin acquiring some serious protection if you haven\\u2019t already done so.\\xa0 Just like winter is coming here and on Game of Thrones, winter may also be coming for your portfolio.\\xa0 So here are some tips to ensure you\\u2019re on the right side of the wall and that you\\u2019ve got some serious protection for your portfolio during those dark times.
Do I have your attention?\\xa0 Let\\u2019s begin.
Some people ask me, \\u201cSteve, with interest rates so low, why should I have any bonds or CDs or savings accounts in my long term investing plan?\\u201d This is when I tell them the story of the Farmer.
A farmer must plant his crop at a specific time. He knows that as spring approaches, it\\u2019s time to get the soil ready for planting, fully aware of the growing and harvesting season ahead.
If all goes according to plan, (maybe based on the Farmer\\u2019s Almanac or hopefully the Department of Agriculture), he will be tending to his crop throughout the summer.
What does he do as he tends to this crop? Of course, he wants to keep his crop healthy until he\\u2019s ready to harvest in the fall, so does he pluck his healthy plants and keep the weeds sprouting around and trying to take over? Of course not, he weeds out the underperforming plants and keeps only the healthy ones.
Notice I used the word underperforming plants. I do this purposefully because there is a direct analogy from the farmer\\u2019s experience to the successful investor.
Most investors will look at their portfolio and sell their winners and keep their losers in the hope that the losers will rebound and become winners in the future. In reality, however, after taking their profits \\u201coff the table\\u201d, they end up with a portfolio of losers. This would be like tending your garden and pulling out only the healthy plants. You are left with weeds and other unwanted junk. Same thing for investors.
Following this strategy of selling your winners and keeping your losers will end with an unhappy result.
Farmer\\u2019s lesson #1:
Cull out your weakest plants, get rid of the weeds and tend to your healthy plants, fertilize them, keep the bugs away, and watch them faithfully.
For Investors:
Cull out your weakest holdings, tend to the heathy companies in your portfolio, maybe add some money to them, and watch them faithfully. Look for their ability to compound their earnings at high rates of return and watch their business very carefully. If you can find a group of companies that will do this, hold on to them as long as you possibly can. This is where real wealth creation comes from.
Farmer Lesson #2:
The farmer knows, as we all do, that winter will eventually come. Some winters are mild, some are nasty, but as spring turns to fall and fall to winter, the farmer knows when it\\u2019s time to harvest and to prepare for the upcoming cold weather.
What does the farmer do? He will take a portion of his harvest and cans or bottles it. He will put his tomatoes, his corn, his cucumbers, and make sure they are preserved for the winter ahead. And, most importantly, he will store these goods in his pantry to use when needed.
For Investors:
The bonds in your portfolio represent the farmer\\u2019s pantry.
As stock investors, we know that markets and economies are cyclical and bear markets are always going to come. Bear markets are a necessary part of the economic cycle because of the basic fact that good economies that last a long time tend to make people do silly things.'