The Silver Bear Cafe

Zen Lessons in Investing
Scott's Investments

John Hussman had a unique Weekly Market Comment for this week. Having spent some time studying Japanese Buddhism, this week's article was of special interest to me. I often read investing guidelines and suggestions from professional traders and money managers that have, in my opinion, strong parallels to Zen Buddhism. This may surprise both the investor and the Buddhist, as oftentimes the two are not associated with each other.

A friend observed that Hussman's article for this week sounds a bit personally desperate given his recent poor performance, almost as if we are sitting in on a personal therapy session. Hussman has been wrong for weeks, if not months, if you measure success by the correlation of his market analysis with the corresponding movements in equity markets. He is now calling stocks overvalued and chose not to participate in the bulk of the equity rally since March. However, I think an investor would be mistaken to use his comments as a gauge for making daily or weekly investment decisions. My impression is that he is looking at full economic and investing cycles and choses to participate (go long) when conditions are most favorable, reduce positions or hedge when conditions are less favorable, and fully hedge, short, or sit in fixed income/cash when conditions are least favorable. Thus, it may be best to use his analysis for perspective and to help gather your thoughts for where we are historically and to get a sense of when the macro-odds are most/least in your favor, rather then to make your weekly buy/sell decisions on individual equities. Rather then rehash all of Hussman's article, here are two Thich Nhat Hanh quotes from the article which I believe have relevance for investors:

The best way of preparing for the future is to take good care of the present, because we know that if the present is made up of the past, then the future will be made up of the present. All we need to be responsible for is the present moment. Only the present is within our reach. To care for the present is to care for the future.

Suppose the mind consciousness is observing an elephant walking. During the time of observation, the object of mind consciousness may not be the elephant in and of itself. It may only be a mental construction of the elephant based on previous images of elephants that have been imprinted in store consciousness.

Inquiry means not using the mental creation, but allowing yourself to get in touch, and to try to see how things truly are. We practice not to be influenced by the name, because when we are caught in the name we can't see reality. - Thich Nhat Hanh

When we are 'caught in the name' and 'we can't see reality', we may, as investors, cling to a market call we made last month. For example, our 'thesis' may be of a bull market, but if we no longer observe that today, then we are only hurting ourselves by clinging to that mental creation. This is not to be mistaken for following the daily move of the market to comprise our market sentiment. Rather, we should still study history, a 20 year chart, inflation data, moving averages, historical earnings patterns, etc., but we must not fear letting go of what defined us as an investor yesterday. To put it more bluntly: do not be afraid to change, to take a small loss to prevent it from turning into a large one, and to admit you are wrong today even though you may have been right yesterday.

As investors I think it is important to live presently - this can be difficult, especially when we are still trying to forget that horrible trade from last week or when we feel the need to worry incessantly about retirement. Make the best investment decisions you can make today. Learn from the past, but do not cling to it. Prepare for the future by taking care of today.

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