What Do You Want?

January 18, 2021

"What do you want for dinner?" my wife asked on our first night as newlyweds. Her question was about what I felt like having, but for me it was about what I should have. It was a response she did not expect, but then again, from the moment of our first date I was always doing things she didn't expect. On that first date, I had asked her out for a bicycle ride but showed up without a bike. I ran the 10-mile loop through the park while she rode her bike. Another thing that surprised her was that when I said "good night," I was asleep the instant my head hit the pillow. 

Healthy eating, exercise, and sleep are disciplines I have consistently maintained which have served me well, especially during times of stress such as we are experiencing now with the COVID pandemic. Health and wellness coach, Kari Pendray, defines stress as "...when the need to respond exceeds our capacity to respond." She explains that there are three forms of stress - acute, episodic, and chronic. Acute stress is caused by things like deadlines, which can be good stress. Episodic stress is high in intensity but short lived. Chronic stress, on the other hand, is both intense and sustained. 

Clinical Psychologist Dr. Kaile Ross says while we "are surprisingly resilient when coping with... short-term stress...chronic stress is likely to cause some degree of emotional exhaustion or burnout for most everyone." Burnout can manifest itself in all kinds of negative physical, emotional, and mental ways. To deal with those problems she recommends coping strategies that include reading and healthy social connections in addition to diet, exercise, and sleep.

Dealing with the constant stress of financial markets isn't much different than coping with the chronic stress of the COVID pandemic. My go to coping strategies for portfolio management include diversification, rebalancing, and factor investing. I have been doing these things from the beginning of my career and have consistently applied them ever since. I recall being interviewed by a prospective client in 1998 who was expecting a significant sum of money from the sale of his business. However, there were problems that stalled the sale until 2002, at which time he interviewed me again. I remember at the conclusion of the meeting he said that of the five advisors and brokers he spoke with in 1998, I was the only one who had the same story in 2002 that I did in 1998. 

While I can't speak to the inconsistency of the others, I can attribute my consistency to discipline. In Investing Psychology, Tim Richards says that advisors "...who exhibit better self-control are... less inclined to react to events and more inclined to stick with their strategies." In the late 1990s it was hard to resist the temptations of the dotcom stocks and stick with my long-term investment strategy. But I did, and it cost me some clients because I was making returns in the low teens, whereas the tech sector was generating returns of 50% and more. However, my self-control paid off in the early 2000s when my clients didn't go bust as the dotcom bubble was bursting. 

The vindication of the early 2000s was nice, but I am far prouder of what I did in 1996 through 1999, when I had the discipline to hold firm. It was during this period that an attorney asked how I could justify my fees since I wasn't "doing" anything. I replied, "I do discipline - and if discipline was easy you wouldn't be fifty pounds overweight." That wasn't very nice, but it was true because as Richards reminds us "...the ability to resist temptation [and] to exert self-control... is critical if we want to be better..." 

It turns out that if you want to be better at coping with the stress of a pandemic, it is important to have the discipline to eat right, exercise, and get a good night's sleep. Self-control is also necessary to be a better investor because it is not easy resisting temptation and sticking with a long-term strategy. Doing what you should do can run contrary to what you feel like doing. But I can attest to the long-term benefits of doing what the statistics say you should. It could be the difference between stability or going bust in retirement. So, before doing something rash, consider -- "What do you want for your retirement?"

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