Remember, best block, no be there. ~ Mr. Miyagi
My first millionaire client would always show up twenty minutes early to our meetings. When I asked him about this habit, he explained his belief to me that, “There is no such thing as early. You’re either on time or you’re late!” He was right. There was no downside to him arriving a few minutes before the scheduled time, and he had the benefit of being confident that he would not be late. There was such a thing as being late, and that came with consequences, even if the consequence was simply being viewed as inconsiderate. This led me to think of other situations where we view outcomes on a spectrum when perhaps being on one side has far more consequences than being on the other.
Consider the quote above from Karate Kid II. In the scene, Mr. Miyagi (played by the late Noriyuki 'Pat' Morita) was giving his student a lesson in defense. The instrument of his instruction was a large swinging blade. The pupil, Daniel (played by Ralph Macchio) was to learn the lesson that he didn’t have to “block” the attack, but rather not stand in front of it when it arrived. This is another example where there would be “no such thing as early.” If he moved out of the way one second before the attack or an hour early, it would make no difference. He would have avoided injury. The real consequence would have come from being late. If he chose to move out of the way even one second too late, he would have been injured or killed by that blade.
How does this lesson apply to investing? Am I likening our current market to a dangerous swinging blade? Maybe, maybe not. It is a question of one’s time horizon. The fact of the matter is there will always be another bad market coming, as they do every few years on average. We just never know exactly when it will arrive. In the absence of that information, we are left with the question of when is the best time to think about being defensive.
The answer to this question will be different for different investors. To help you in determining the right answer for you, I suggest that you ask yourself this question: What is the consequence of being early vs. the consequence of being late? For some people, being late would be a personal financial disaster and for them, “There is no such thing as early.”
Related: Is this Market Like a Campfire?