umans tell stories. Whether in hieroglyphics on walls, ink on parchment or CGI on Netflix, stories are a constant feature in each generation’s tale. American author Kurt Vonnegut put it neatly;
“Tiger got to hunt, bird got to fly; Man got to sit and wonder, ‘Why, why, why?’ Tiger got to sleep, bird got to land; Man got to tell himself he understand.”
We thirst to understand the environment around us, and we do that by simplifying ideas into stories. From the shape of the world, to how apples fall off trees, and why chickens peck the ground the moment they hatch, we create a narrative explanation.
The problem is, the world can’t be condensed so gracefully, it’s too complex – just think how many scientific theories have been proven wrong.
Which is how we get in trouble with our investments. Every morning, there’s an avalanche of news, and our instincts tell us we should read, compute, and use it to take corrective action.
And if the stories are gloomy, our instincts go into overdrive because, if someone shouts, “You’re under attack!” you run first and question second.
But as Charlie Munger says, “Invert, always invert”. Or in more words; if it feels right, do the opposite. Which is sensible for a few reasons.
- “If it bleeds, it leads” – bad news sells, so you’re likely to read about bad case scenarios, even if they have a low probability of happening. Think about the author’s incentives; they want to sell papers, or attract eyeballs. Growing your retirement pot may not be high on their list of objectives.
- Over the long course of history, optimism has triumphed. The world has improved and with it, stock markets have risen. There will be setbacks, they might be significant, just as there have been in the past, but a negative view is an implicit bet against humans’ ability to adapt, survive and flourish. The weight of 300,000 years of evolution begs you not to take that bet.
- Outside of financial markets, running from supposed trouble doesn’t cost much. Inside the ropes, the costs can be crippling. It might cost you to trade in the first instance, but if you sell and the market rises, you’re stuck with another issue; when do you get back in? Our experience says investors don’t and instead remain on the side-lines regretting gains they would’ve had.
Charlie Munger again:
“The first rule of compounding: Never interrupt it unnecessarily.”
If you’ve got a diversified portfolio and sensible long-term plan, stick with it. If you don’t, spend time working on these foundations, rather than worrying about how it might all end.