Your Quality of Sleep
Not long ago, my better half Megan and I went on a sailing trip in the Caribbean with some friends who had never sailed before. The weather in Antigua that week was exceptionally rainy and windy. Every evening the winds would die down, which allowed us to enjoy a peaceful dinner watching the moon light up the bay. But the moment we retired to our cabins; the boat would start to rock. Looking out the window, we could watch the sea turn into a fast-moving river. Any loose lines clanged rhythmically against the mast. Several times I got up and turned on the instruments to check the wind speed. It was gusting well over 25 knots in our well-sheltered bay. That’s a wind capable of stirring large branches and turning umbrellas inside out.
Fortunately, we were secured by a long heavy chain and a sizeable anchor, well dug into the sandy bottom. If that wasn’t enough, to ensure that the boat didn’t drag the anchor in the middle of the night, I dove down before sunset to see how well it was holding. I was happy, it held us steady all night long, and we all got a good night’s sleep.
I am often asked what I believe matters most in investing. I surprise many listeners when I say it’s the quality of sleep. From every single stock we pick to the portfolio as a whole to a family fortune, quality of sleep is what matters most. There are days when I don’t check our stock prices. I know what we own, and we are comfortable with those selections. If I had to, we could go for weeks or months without checking prices on our stocks. It’s an incredible peace of mind to know what you own, and why.
We are always excited to buy stocks that have good odds of going up over time, but we never do that at the expense of the quality of sleep. We firmly believe that if you avoid some signs of obvious trouble you immediately eliminate a long list of worries that could keep you up at night. Based on all the stocks we have ever looked at or owned, we can identify three sources of trouble – high leverage, questionable management, and secular decline. If a company has borrowed too much money, if its leadership doesn’t come across as trustworthy, if an industry is facing a permanent change (the deaths of the film camera and the printed newspaper are two examples) – those are sufficient reasons to pass on a stock.
We look for companies that have good odds of holding steady even through the roughest seas. They need to have a good business, good management, and excellent prospects. A good steady business may still feel the impact of an economic downturn, but it’s likely to continue and strengthen as competitors fail. A good steady management that plans for the long run will, based on our observations, stay the course, and endure even the hardest times. Lastly, an open-ended market opportunity helps a good business and a good management turn a small success into a bigger success, if an investor is patient.
We believe that the quality of sleep is the best test of any investment you make and any anchorage you choose. Waking up in cold sweats in the middle of the night doesn’t sound like fun to us. I have personally experienced it both in investing and in sailing. It’s a lesson I only needed to learn once, and I strive to never to repeat it. Once in beautiful Tobago Cays (Grenadines) we found a spot in shallow water with small rocky islands surrounded by treacherous reefs all around us. We all woke up in the middle of the night, when the anchor started to drag bringing us uncomfortably close to sharp rocks. In the rain and wind, we had to reset the anchor in a better spot. Similarly, early in my career, I’ve made a couple of investments that cost me a sleepless night or two, among them a failing retailer that went bust since.
The truth is that there are plenty of investment opportunities out there, and I believe selecting any at the expense of your quality of sleep is just not worth it. With that in mind, take a look at what you own, and tell us — how are you sleeping these days? We like to sleep well. Do you?
The information provided in this article represents the opinions of Sicart Associates, LLC (“Sicart”) and is expressed as of the date hereof and is subject to change. Sicart assumes no obligation to update or otherwise revise our opinions or this article. The observations and views expressed herein may be changed by Sicart at any time without notice.
This article is not intended to be a client‐specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon. This report is for general informational purposes only and is not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally.