Years ago, I had the opportunity to attend some self-defense workshops put on by military and law enforcement. One class that changed my outlook on life was a knife course. We were going to learn how law enforcement treats knives and how to work with a knife ourselves. “The thing to keep in mind about knife fights is that YOU ARE GOING TO GET CUT.” Wait, what? This guy was supposed to show us how not to get hurt! It turns out that it is just incredibly difficult to wrestle around with someone that has a knife and avoid the blade. You can train all the disarming techniques you want, but in real life blood is drawn almost 100% of the time. I’ve found that this is a useful way to view conflict in general. In any conflict, expect pushback whether it’s in sports, telling your 8 year old to take a shower, or investing. The other side has their own agenda. Don’t engage unless you’re ready to get dirty.
YOU WILL GET HIT WITH A SHOE
Humans are born to avoid pain. Are you more likely to read an article about how the markets are doing swell and you should stick to your financial plan or an article about how you are unprepared for the next bear market? As a result, we spend so much time worrying about the next bad thing to happen that we have trouble accepting any good outcomes in between the bad times. While it’s difficult/impossible to predict what will trigger the next crisis or even when it will begin, too much has been written imploring investors to prepare for the last crisis. Avoiding tech stocks didn’t help investors weather the Great Financial Crisis. Filling a portfolio with investments that did well in the Great Financial Crisis is unlikely to help during the next bear market. It’s kind of like Austin Powers wrapping his mind around being hit by a shoe. When the bad times do come we are unprepared because no one predicted the market would throw a shoe.
Accepting that bear markets will come and that we cannot predict their nature is key to investing over the long term. The other side of this is accepting that bull markets also happen and move the markets more than the bears. Over time, the chart of the stock market is up and to the right. I agree with Peter Lynch when he said, “Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in corrections themselves.” It’s funny that we focus so much on downside surprises that we can be frightened out of participating in the upside surprises. However, if you’ve come to terms with the idea that the market moves both up and down, you’ll feel less fear and see more opportunity.
What Do I Know About Getting Punched?
I was a student and later an instructor at a martial arts studio. The main focus of the school was typical – giving kids a constructive outlet for their energy, providing adults with a unique exercise regimen, and it turns out that martial arts are incredibly positive for kids that have ADD or other behavioral issues so we were a popular referral for that. There was group of us that was interested in what I’ll call ‘practical application’ of martial arts. Basically, invite-only full-contact training. This was before MMA was a thing. UFC was around, but it was fun to watch – you’d see bouncers, kickboxers, shoot fighters, jiu-jitsu practitioners, and anything in between and the fighters had to fight multiple times in a night. Fun stuff. Today, everybody uses the same basic style which takes the fun out of it. You don’t get to watch a boxer take on a wrestler or anything fun like that anymore. My point is that whenever I hear the Tyson quote about everybody having a plan until they get punched in the mouth, I can relate as I’ve been on both sides of that experience.