Pearls of Wisdom

By Todd Gray

After 38 years in the investment management business, I am retiring from my position as a Portfolio Manager. I have been given the opportunity to share any pearl(s) of wisdom that I have learned about investing over the years. Thus, I began a trip down memory lane thinking about what I have experienced over this time span. What initially stuck out in my memory was a lesson I learned early on that echoes the

wisdom of Warren Buffett, who said, “The stock market has a very efficient way of transferring wealth from the impatient to the patient.” I happen to be one of those people for whom patience is not a natural trait. However, I learned early in my career the value of exercising patience when investing in stocks.

I began managing money in 1986, and my initial experience was that you bought stocks and they went up. I remember thinking how easy investment management was and how much I loved the job. Then came the infamous “Black Monday” on October 19,1987. On that day, a substantial drop in stock prices happened across the globe starting with the Asian Markets, then Europe and later the U.S., with the S&P 500 Stock Index dropping by more than 20% in a single day from 283 to 225. As an inexperienced portfolio manager I can tell you that my opinion of my job changed dramatically. Thus, I learned my first lesson: everyone is a great stock picker in a bull market! Fortunately, thanks to sound advice from my older and more experienced colleagues, I did not act on my inner voice, which was screaming, “Sell, sell, sell!” If I had been impatient and sold, I would have turned the “paper” decline in the value of my clients’ stock holdings into a “real” loss and prevented them from participating in the market gains of the following years. 

Ten years after “Black Monday” the S&P 500 Index had gained more than 325% from the closing price on October 19, 1987. As I write this article on May 9th the S&P 500 Stock Index is trading at 5216, representing a gain (excluding dividends) of over 2200% since Black Monday. I have learned that patience is one of the most important attributes for successful stock investing.

A second pearl of wisdom is closely related to patience: the importance of maintaining a long-term perspective. As I think about the market events that have taken place during my career, I immediately call up all of the major negative events that have taken place, including economic and market downturns as well as natural disasters, terrorist events and most recently a pandemic. The focus on major negative events is, unfortunately, a natural trait for me, and it is a trait that many investors share, which keeps them from experiencing the full gains of the stock market over time. Trust me, I understand how difficult it is to be patient and to keep a long-term perspective when the value of your investments keeps declining and all the news you hear and read is negative. It is important to keep in mind that while in the long term the stock market is a great measuring device of the value of companies, in the short term the stock market can act very irrationally with prices being driven more by emotions than facts. The most successful stock investors historically have been those who have been able to maintain a long-term perspective and have used sharp market declines as a buying opportunity.

Thirdly, I have learned not to underestimate the resilience of the U.S. economy and the stock market. Although there have been a number of those major negative events during the last 38 years that caused considerable consternation and fear at the time, our economy and capital markets have always rebounded strongly, moving on to new heights. My Trust Company colleague, Chris Chapman, now retired, wrote the following words, which have been a touchstone for me during market downturns: “The stock market’s long-term performance is an indicator of humanity’s resilience and capabilities. We have endured through many dire times including economic downturns, destructive wars, and natural disasters and yet have sprung back after each one. The motives to provide for one’s family and take advantage of opportunities have been prime drivers of recovery, adaptability, inventiveness, and growth.”

In closing, I want to say what a pleasure it has been to work at the Trust Company of Vermont. After having worked for several large banks, the opportunity to work for an employee-owned company has been a breath of fresh air. My colleagues at the Trust Company are among the best I have had the pleasure to work with. Regarding our portfolio management team, I can assure you that these talented folks work diligently to identify high quality companies with substantial competitive advantages that will grow our clients’ wealth over time. So, during the next downturn I urge you to be patient with them and the markets, keep a long-term perspective, and remember the rebounds that have followed our worst times.