Good afternoon. 

A year ago, on the tails of 2021's enormous bull market, I pointed out that investors who chase hot performance often get burned.

And just last week I described how investors who are fleeing volatility might not always get what they are bargaining for.

Blogger Ben Carlson recently pointed out that these two columns, published almost exactly a year apart, are like bookends. They show, at opposite poles, why buying low and selling high are both so hard.

Instead, when you buy high and sell low, you're taking the paths of least resistance.

In a bull market, buying high feels great. Let's party! But selling high -- or even just not buying more -- is hard to do. It feels like pooping the party and missing out on easy money. 

In a bear market, selling low brings relief (at least in the short run). Meanwhile, buying low -- or even just staying put while others panic -- feels like throwing good money after bad.

Buy-and-hold investing is often derided as a mindless "set-it-and-forget-it" approach. That ignores the fact that resisting the powerful pull of market extremes takes tremendous emotional discipline.

Setting it is relatively easy.

Forgetting it is what's hard. Every day the investment industry bombards you with propaganda that hypes recent past performance and pretends to foresee the future, trying to push you into buying high and selling low.

That's why discipline is so important.

As Cliff Asness, a founder at AQR Capital Management, told an investing conference at Columbia Business School last week:

"The definition of insanity is doing the same thing over and over and expecting a different outcome. Sticking with a great investment process when it feels like it’s punishing you over and over isn’t 'the definition of insanity.' It’s your job."

Before the U.S. had a national currency, money was issued privately by local banks as negotiable promissory notes or banknotes.

Often beautifully engraved and nicknamed "shinplasters" after the scrap paper soldiers lined their boots with, these notes were issued by thousands of banks on various sizes of paper, often in small denominations.

R. Magee, a "Stationer and Valentine Manufacturer," printed this facsimile banknote in Philadelphia in 1853. Then, as now, humorous Valentine's Day cards were popular.

This fake-banknote valentine, issued by the imaginary "Bank of True Love," is more ambiguous than it looks.

It claims to be "SECURED BY THE WHOLE STOCK OF TRUTH, HONOUR, AND AFFECTION." At the center, Cupid rides a chariot pulled by a dove, and at the right couples stroll in the park.

But everyone knew at the time that banks often failed and their currency regularly became worthless. So merchants, depositors and investors traded banknotes in secondary markets, much like stocks or bonds, often at deep discounts to their face value.

The Bank of True Love doesn't even say what units this note is denominated in. Maybe it's worth 100 dollars; maybe it's 100 kisses.

Whoever received this valentine, 170 years ago this week, probably laughed, hugged the giver -- and then secretly started worrying about whether this love would turn out to be as least as good as money in the bank.

May you and your loved ones have a Valentine's Day without any ambiguities whatsoever!

In our last issue, I asked:

Have you ever been burned chasing a hot stock or other asset? Did that experience teach you techniques for resisting temptation the next time some asset takes off?

I got burned getting talked into the frenzy of buying a meme stock: AMC...Instead of selling it I keep it in my portfolio to keep as a constant reminder to not to give in to this frenzy ever again, after losing 87% in value.
—Alexa Knight, Albuquerque, N.M.

Your question reminds me of Mark Twain’s quote, “A man who carries a cat by the tail learns a lesson he can learn in no other way.” For me, chasing hot stocks was the financial equivalent of picking up the neighbor’s cat in that manner when I was a child. 
—Kevin Mullins, Delray Beach, Fla.

[In 1999-2000] JDS Uniphase's big claim to fame was division-wave multiplexing or cramming colored light through fiber-optic cables, greatly increasing their throughput. I think I bought in the $200’s and sold at $2 when the dot com crash occurred. I now look for the opposite and try to buy good, dividend-paying companies in the midst of market meltdowns and hold onto them.
—David Petitti, Waterbury, Conn.

Yes, and YES! I fell for the frenzy of buying a couple new (tech) IPOs because I knew the companies and loved them. I've lost my shirt on both of them. Lesson learned: Just because you feel a company is great and has a very bright future does not mean that it will do well in the stock market. Better to keep an eye on how it performs not only on the financial reports but also in the market, as one does not seem to correlate with the other....A great lesson to not jump on the IPO bandwagon—ever!
—Gabrielle Fontaine, Clearwater, Fla.

In "'Green' Funds Cost Three Times More Than You Think," I recently wrote about funds that seek to make the world [E]nvironmentally cleaner, [S]ocially fairer and [G]overned better.

It turns out that these ESG or "socially responsible" funds are surprisingly similar to conventional portfolios. If a third or less of the portfolio is different from a plain old index fund, but you have to pay the management fee on your entire investment, that's the equivalent of a triple fee on the "pure" ESG portion.

Do you own ESG funds? Why or why not?

To share your thoughts, just reply to this email. Please include your name and location. Responses may be edited for clarity or brevity.

Be well and invest well,

Jason

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But I always owe you love, the only debt which, after being repaid, always leaves one a debtor.
—St. Augustine