Freo, my golden retriever, turned 13 recently. That’s old for his breed.
As he has aged, our relationship has changed. These days, it’s me waking him up every morning excited for the new day; on walks, it’s him letting me go off leash and wander while he keeps a close eye on me and awaits my return.
What hasn’t changed is that he is still teaching me lessons. Discussing this with my family recently, I realized that those lessons aren’t limited to the animal kingdom; they apply to my financial life.
I’m not saying — to paraphrase the title of a popular book from the mid-2000s — that everything I ever learned about investing came from my dog, but I will say that the techniques I learned in handling, training and living with my dog come in pretty handy when applied to my investment life.
One note here: Having been mauled by a neighbor’s dog as a child, I only came around to having one in my family about 15 years ago. The childhood experience inspired me to work closely with my first dog — who died at just 5 years old due to cancer — and then with Freo, so that I could develop faith, trust and confidence in the relationship.
In that way, working with dogs and investments starts highlighting similarities. Many investors still feel like their portfolio was attacked by their bursting of the internet bubble, the financial crisis of 2008 or the bear market that accompanied the start of the pandemic; while they are still investing, they do it tenuously despite the long-running bull market. Like someone who has had a bad experience with a dog, they find it hard to trust the market.
Here are some other lessons Freo has taught me that apply to investing life.
Don’t change your life for your investments. There’s no denying that life changes when you get a dog, but it shouldn’t change you as a person. The same applies to your investments.
If you are a buy-and-hold investor and you buy a stock or fund (or cryptocurrency) and now you’re obsessing over daily fluctuations, you’re giving the investment too much control over your life. Whether you are a long-term holder or a trader, any issue that makes you change your basic instinct and behavior is a bad fit.
Attitude matters. Freo doesn’t run much anymore, but he still is excited to chase a ball, even if it’s just for a few steps. He’s excited for every opportunity to play.
Investors should feel that way about their actions and what they are putting in the portfolio. You may find over time that your interest in running your portfolio waxes and wanes based on everything else happening in your life, but you should always be excited for the potential of each security.
Sometimes, a short leash is just the thing. When a dog doesn’t act the way you expect, shortening its leash may help you elicit the behavior you want. Shareholders can’t yank a leash and make a money manager smarter, but they can show their disappointment by investing a small amount and seeing how they adjust to and accept the security’s behavior, or they can move their money elsewhere.
Unlike adopting a dog, you don’t make a lifetime commitment to stocks and funds. If a security behaves badly for long enough and performance doesn’t improve, it really is acting like a mangy dog, and you want no part of it.
Good behavior should be rewarded. Mutual funds and corporations don’t want treats; they’re after your money. That said, they deserve it when they perform up to or beyond your expectations. The more they prove their ability to deliver, the more you trust that any downward blips in performance will be short-lived and not a sign that your portfolio is about to bite you in the assets.
Dogs — like investments — don’t always mix and play well together. You may have a calm, docile dog, but that doesn’t mean it won’t occasionally come across another animal where all the two can do is snarl and snap at each other. The same goes for some investments, most typically when it creates big overlap.
If your mutual fund and exchange-traded funds are all heavy in technology, for example, the market could turn, and that lack of diversification could take a big bite out of your total portfolio. This is a lesson to keep in mind when you add something to your holdings, because investors tend to buy what has been working lately and only discover the problem when they see the teeth marks on their account balances.
Dogs and investments both need their space, but they will come back to you. You shorten the leash on performance, but you take a stock or fund off the leash if management proves that it can deliver by making savvy business moves. While rebalancing a portfolio to get it back on to plan is like tightening the leash, letting your winners run and investments grow makes sense; you maintain control — don’t let the portfolio mix get out of hand and too far off the plan — but don’t have to obsess over it.
There’s no substitute for sleeping well. Dogs snap out of deep sleep and to full attention based on noises, their own neuroses and any perception that something is amiss. Likewise, investors lose sleep when they sense something amiss in their portfolio.
Trust that instinct and check things out; it will improve your sleep factor.
If you fear the bark, fear the dog. This is about your gut feeling, more than the investment. Plenty of dogs make a lot of noise without creating real trouble, but that doesn’t mean you should go out of your way to pet them if it makes you uncomfortable. Likewise, investors may be intrigued by meme stocks, hot funds, cryptocurrencies and more that put up big numbers. Big gains are always a draw, unless you worry about an investment’s history of volatility and performance swings. If the investment has the potential to turn on its master in a way that makes you skittish, go with that feeling and find investments that you can more appropriately keep as your financial pets.