The Government Can Take Anything Away with Douglas Tengdin

 

Background: Douglas Tengdin

  • Chief investment officer of Charter Trust Company, where he has worked since 2000
  • Graduated from Dartmouth College in 1982
  • CFA Society Vermont’s founding president
  • First job in investment industry was as a mail boy and runner in 1974
  • His daily blog is the Global Market Update

Douglas’ worst investment ever

  • Was not so much terrible as it was memorable
  • In 1988, he was in his late 20s and was a bond trader for a mid-sized US bank
  • Built models to help his bank trade treasuries
  • Had success with these models and was hired to help manage bank’s treasuries department
  • Bank lets him trade real funds and he made early wins
  • Suddenly in August, Greenspan’s Fed raised the discount rate
  • Dow Jones’ ticker machine sounded the alarm
  • His modest profit in four-year Treasuries turned to a big loss
  • Severe and instant emotional response
  • Mind racing, felt like a brick dropped into his stomach, wind sucked out of his lungs, numbness in his limbs
  • Closed his positions that day
  • But colleagues cheered him up saying “it’s early in the month, you can make it back”
  • And he did!

Douglas’ takeaways

  • The government can take anything away
  • Government policy is unpredictable and you may think you have a way to predict it, but you can’t
  • Size matters (position size, that is)
  • Douglas’ position size was manageable, he hadn’t taken an outsized position
  • We don’t know the future
  • We invest based on forecasts, but we have to be humble about those forecasts
  • … and remind ourselves continually that we don’t know the future
  • If you think this will never happen again, get out of investing
  • As disclaimers say: “All investment carries risk”

My takeaways

  • That’s the way investing goes, sometimes, you just have to be prepared for such losses
  • Sizing your position protects against big portfolio loss
  • On top of bad news, governments can also lie or mislead
  • Be very careful if your investment case is reliant upon the government

Actionable advice

  • Douglas’ created a phrase that’s on his wall:
    • “Diversification is the compliment that humility pays to uncertainty”
  • He says people have to be humble in this business
  • If not, the markets are going to humble you
  • You have to diversify because the future is uncertain
  • Answer to uncertainty is diversification:
    • Time diversification – you can have different maturities
    • Position diversification – calculated sizing is incredibly important
    • Mental diversification – using different approaches to the market to build a portfolio

My Worst Investment Ever six main categories of mistakes:

  1. Failed to do their own research
  2. Failed to properly assess and manage risk
  3. Were driven by emotion or flawed thinking
  4. Misplaced trust
  5. Failed to monitor their investment
  6. Invested in a start-up company

DISCLAIMER: This content is for information purposes only. It is not intended to be investment advice. Readers should not consider statements made by the author(s) as formal recommendations and should consult their financial advisor before making any investment decisions. While the information provided is believed to be accurate, it may include errors or inaccuracies. The author(s) cannot be held liable for any actions taken as a result of reading this article.