Investment Lies

In the span of three hours I got an email from Peter Attia, a medical doctor that specializes in longevity. And another one from Shane Parrish, a former Canadian intelligence employee. And yet, they were both talking about the same topic on the same day.

The first email referenced an article about two cyclists who raced at the 2001 Under-23 National Road Race Championship in the US.  

The article was a story of shame, simple words, hard to say words, lying to others and lying to oneself.

I loved this article because the insight was told through the eyes of a sports race. And how one event in one’s life, however short or long can change the way we see and act in the world.

It parallels investing because so many investors are still being shaped by past financial events that will never happen again. And yet these one-off events still grip and drive their thinking (and the growth of their money) today.

There are people who are still worrying about another “1987.” And because of that they have lost many times that 1987 loss by investing their money based on avoiding an event that has the probability of a lighting strike happening in the same spot on the same day of the year.

The same goes for 2000 or 2008.

The 2000 and 2008 events weren’t market falls. Yes, of course the market fell. But they were really, “I had no idea this was going to happen and didn’t know how to protect myself” events.

There are people who have kept their money in cash and bonds for four, five and even ten years so they won’t ever have another 2008 happen to them. The problem. They missed the last ten years of market growth, which was a bigger loss then the loss they were attempting to sidestep.

All because they didn’t understand that the event they were hoping to avoid was a “I had no idea how to respond” event.

It’s hard to see what is really happening in the moment without training.

And that is why this bike racing article about the 2001 Under-23 US Road Race Championship is so aligned in many ways with how we investors choose the wrong words/actions in the moment and then unnecessarily suffer the consequences longer than needed.

The solutions can be powerfully simple. Once the choice is made to see the world this way.

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The second email I got was from Shane Parrish, the guy behind Farnam Street. He wrote a great three minute read about lying.

“We make up stories in our minds and then
against all evidence, we defend them tooth and nail.” – Shane Parrish

He quoted Daniel Kahneman in the article and talks about how when a very obvious cause and effect are not present our brains will still draw a conclusion. And then the completely made up conclusion becomes law. And we can’t stop it. This is how our brains are wired.

So if very obvious cause and effect is missing, like it is almost all the time in the stock market. Our brain will go look for one.

The market went up because of Trump’s tweet.

The market fell because Apple missed their earnings.  

The market’s going to fall because its’ P/E ratio is 28.

The market’s going higher because of share buy backs.

You get it?

It’s all made up. And yet our brains think its real.

Below is the only real thing I can find about the S&P500 Total Returns stock index.

If the price stays in the green shaded area, then no need to even look or pay attention to the market as its strong and wanting to go higher.

If the price drops down into the yellow shaded area then the market is back to considering whether it should go higher or lower. Not crash mind you, just reconsidering an upward movement.

And if the price drops down into the red shaded area, then the market clearly see dark clouds ahead. And taking cover is recommended.

What is your money trying to tell you that you?

People have found this video worth their time, and so I wanted to make sure you knew about it.  

In Your Corner,

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RC Peck, CFP

PS – Whenever you’re ready, there’s three things I can help you with…

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