An Integrated Advisor Network firm

A Brief History of Investing

Reading A Brief History of Time was like taking the red pill offered by Morpheus in the 1999 movie The Matrix. Having recently seen Stephen Hawkins’ obituary in The Economist, I was reminded of the impact his book had on my life. The reality of theoretical physics, as explained by Hawkins, is a different paradigm than the reality of our senses. The obituary’s author suggests that this “…departure of scientific reality from what common sense suggests is going on… threatens the human psyche just as much as it did in Galileo’s day,” because we just can’t “…cope with facts like these…”

I would argue that facts are illusive and we are actually having to cope with continually morphing theories of what is real. For example, speculation that we may be a three-dimensional hologram encoded in a two-dimensional universe, is gaining popularity. This eerie similarity to The Matrix is both fascinating and frightening. It is at points like this, where comfort and curiosity diverge, that we have to choose whether to take Morpheus’ blue pill “…and believe whatever you want to believe... [or] take the red pill… [and see] how deep the rabbit hole goes.”

As an investment advisor, I came to such a point where I started questioning the basic principles of the comfortable business I had built. And just as Neo followed the person with the “white rabbit tattoo,” I began a quest to discover the reality of investing. So, like Alice who, in Lewis Carroll’s words, popped down the rabbit hole “…never once considering how in the world she was to get out again,” I sold off my business and fundamentally started over again in my late 40s. And, while my cast of characters was not as bizarre and eclectic as Alice’s, I did find experts who, similarly, not so much taught me things as helped me to discover them for myself. That last sentence is a Galileo paraphrase that reminds us that we must learn things for ourselves before we truly understand them. One thing I learned, and can honestly say I understand, was the subject of a recent paper published by the brains behind The Big Bang Theory -- the TV show, not the origin of the universe.  I’m not that smart.

In Now and Then, Dave Goetsch, Executive Producer of The Big Bang Theory, reflects on his investment journey. He describes the state of panic he experienced when the stock market was down 50% in February 2009. “Markets were going up and down in ways no one could predict, and I couldn’t trust those folks who said that they could anticipate what was going to happen. So when the market went down, I went down with it – sinking into a depression, knowing there was nothing I could do.” But, according to the famous chemist and physicist Marie Curie, “Nothing in life is to be feared, it is only to be understood. Now is the time to understand more, so that we may fear less.”

Curie’s antidote for fear is understanding and action--and that is what Goetsch did. He learned, “I was right not to trust those people who thought they could predict what was going to happen in the markets, but I was wrong in thinking that there was nothing to do.” He learned to “understand the uncertainty of the market” and came to realize that you have to have a long-term perspective “when you’re being assaulted by noise…” Like most of us, he needed help with his journey down the rabbit hole. He admits, “There is no way I could have done this without my financial advisor.” He not only helped him with his asset allocation, but also with his thinking about investing.

Goetsch’s advisor and I both took the red pill of investing. In my case, the pill was Roger Gibson’s book on asset allocation and risk. It could easily be titled a Brief History of Investing. It taught me to manage client expectation, the primacy of asset allocation, and that uncertainty cannot be avoided. While it would be nice to offer our clients a blue pill which, in his words, would “…eliminate the uncertainties that are so difficult for them to live with,” that’s not reality. And reality can be a hard pill to swallow.