Reload – What Is The “Ultimate Weapon” In An Insane Market?

Joe DeFranco - DeFranco's is a physical training center for elite athletes.

In Wyckoff New Jersey there is a Physical Training center for elite athletes called “DeFranco’s”, owned and operated by legendary hard-core physical trainer, Joe Defranco. “DeFranco’s”, established in 2003 is a mecca for some of the best athletes in the world, which includes over 50 NFL players, Olympic athletes from all over the globe, as well as superstars from the wildly popular sport of mixed martial arts. DeFranco pioneered the warehouse-type training center devoid of juice bars, showers and even air conditioning in which elite athletes “train to failure” for the sole purpose of the love of training and the possibility of becoming a champion in their chosen sports. His hard–core warehouse gym has been named one of the top ten gyms in America by Men’s Health  Magazine and featured on such networks as ESPN, The NFL network and Spike TV. I had the opportunity to be featured in a documentary about Defranco’s in a movie called “Strong“. His standards could best be summarized by his goal for the athletes he trains, which is prominently displayed on the home page of his website “turn your body into a weapon”.

Having known Joe for ten years, he adheres to a philosophy that if an athlete is to become the best in his sport, he must not only be strong, fast and have tremendous endurance but he or she must be “a perfect weapon” – they must have a relentless desire to become the best and to never give up. He considers “mental toughness” and “unwavering discipline” to be the two most important characteristics of a champion. He often uses the quote that there are only two pains in life, “the pain of discipline and the pain of regret”.

In many ways investing has numerous similarities to DeFranco’s philosophy, especially when it comes to discipline and mental toughness. It is these principles which will lead an investor to invest with discipline and therefore eliminate the “regrets” that virtually every investor encounters during their lifetime. It is these two qualities which separate great investors from mediocre investors and it’s these two qualities that I consider the ‘ULTIMATE WEAPON”.

As the year draws to a close, investors all over the world are most likely feeling that they are in the fourth quarter of a brutal game, playing injured and hoping that they could endure to the end and maybe walk away with a victory. They probably feel as if they are in the last round of a mixed martial arts championship fight – battered, bruised and bleeding with barely enough strength to keep their arms up as their opponent tries to land the last “fatal punch or kick to the head”. Like the athlete in the “ironman” competition trying to finish the last event when exhaustion has made them delusional, feeling as if their losing control of their physical bodies, with only their “will” to help them cross the finish line.

As of today, the S&P 500 is virtually unchanged year to date. Investors who have stayed invested in stock have experienced unprecedented volatility. From the end of May to early October, they have seen a plunge of nearly 20% and a surge in the last few weeks which erased much of the plunge and left their portfolios virtually unchanged from this time last year or in some case lower, even much lower. In other words, it’s been an insane ride to end up just where you started.

It is market volatility like this which is like the aforementioned mixed martial arts fighter who stumbles into the final round fearful of that “final” lethal round house kick or punch to the body that would break a rib, feeling defenseless and afraid that not only will they lose the fight but they will lose everything they’ve worked their whole life for – which is to become a champion in the sport they love.

It is this same type of “fear” that characterizes the “mood of the market” today and is the reason for these high levels of volatility and the reason that volatile markets never end well. It’s the “fear of the unknown”, the one event, whether it be the complete and absolute failure to contain the European Debt crisis, the failure of our government to get our out-of-control deficit under control or perhaps the high probability of a worldwide banking crisis which could send this market “to the canvass” – in some cases destroying the portfolios that investors sacrificed their whole lives to build.

Although we (at Sica Wealth Management), have not achieved “mind blowing” double digit returns for our investors this year, we “did not” participate in much of the market volatility. We “did not” see our portfolios plunge 20% over the summer, nor did we participate in the market surge of the past few weeks. In other words, we are not battered, bloodied and bruised because we reduced our 15% stock position at the beginning of the summer to virtually zero in stock by summer’s end, not out of complacency but out of discipline. It is the “discipline” to know that there are too many “unknowns” and too much volatility to “trust” this markets ability to recover overnight. A successful investor knows that the “ultimate discipline” is to not chase rallies based on virtually nothing or listen to the “so called” experts who work for banks or financial institutions, whose survival depends on the market going up. I used to call them market cheerleaders, until my daughter Nina became a cheerleader and realized that it was offensive to cheerleaders to compare them to big banks and financial institutions – so, I will have to figure out another name to call them.

In the immortal words of Greenbay Packers coach Vince Lombardi, “fatigue makes cowards of us all”. We are in a market that is fatigued – to not participate in this volatility is to not become fatigued. We are not fatigued and by no means cowards. Joe DeFranco says that, “the most important factor in an athlete’s success is what they do in the off season”. It is not a time to be lying on the beach on a tropical island but to get disciplined, work like you’ve never worked before, study your opponents and mentally develop strategies to defeat them, especially by studying their flaws and inconsistencies. The market should always be viewed as “the opponent” with many flaws and inconsistencies which can be “taken advantage of” at the right time. Study it relentlessly and never make yourself vulnerable to it when its volatility is overpowering you. As Joe DeFranco trains athletes to turn their bodies into weapons, investors should strive to turn their investment strategies into weapons and be mentally tough enough to never give up.

In recent weeks some people have been critical of our not participating in this recent market surge – my response is – we are simply Re-loading.