Easier Said Than Done
By Capital Thinking • Issue #1056 • View online
“Every job looks easy when you’re not the one doing it.”
– Jeff Immelt
Now You Get It
Morgan Housel | The Collaborative Fund Blog:
Historian Stephen Ambrose writes about World War II soldiers who left basic training full of bravado and confidence, eager to fight when they join the frontline. Then they get shot at, and everything changes.
“There was no way training could prepare a man for combat,” Ambrose writes. It could teach you how to fire a gun and follow orders.
But “It could not teach men how to lie helpless under a shower of shrapnel in a field crisscrossed by machine-gun fire.”
No one could understand it until they experienced it.
A lot of things work like that.
Most actions have two sides: skill and behavior. What’s true in theory vs. how it feels in the moment. The gap between the two can be a mile wide.
No amount of empathy and open-mindedness can recreate emotions. Textbooks and classrooms can’t teach what genuine fear, adrenaline, and uncertainty feel like.
So you think you understand how a field works until you experience a new part of it firsthand. Then you see it through a completely different lens.
Two other things that must be experienced before they can be understood:
Losing a third of your money or more
Can you survive your assets declining by 30%?
On a spreadsheet, maybe yes – in terms of actually paying your bills and staying solvent. But what about mentally?
It’s easy to underestimate what a big decline does to your psyche. You might realize your confidence is more fragile than you assumed. You – or your spouse – may decide it’s time for a new plan.
I know several investors who quit after losses because they were exhausted. Physically exhausted.
Spreadsheets can model the historic frequency of big declines. But they can’t convey the feeling of coming home, looking at your kids, and wondering if you’ve made a huge mistake that will impact their lives.
I don’t think there’s any way to understand what a bear market feels like until you’ve lived through one.
Part of the reason is that it’s impossible to contextualize what causes losses until they happen.
If I say to you, “How would you feel if the market fell 30%?” you imagine a world where everything is the same as it is today, but stock prices are 30% cheaper. And in that world, it feels like an opportunity.
But what actually makes the market fall 30% is a pandemic that might kill you, or a recession where you might lose your job, or a terrorist attack that might just be beginning, or inflation with no end in sight.
And in that world – a world that can’t be known until it happens – things feel different.
Saying “I’ll be greedy when others are fearful” is easier than actually doing it, because people underestimate the odds of themselves becoming one of the “others.”
Future fortunes are imagined in a vacuum, but reality is always lived with the good and bad taken together, competing for attention.
You think you know how it’ll feel. Then you experience it firsthand and you realize, Ah, OK. It’s more complicated than you thought.
Now you get it.
Photo credit: Nigel Tadyanehondo on Unsplash