When I first graduated from the U.S. Naval Academy with a degree in Economics, I never would have thought after 8 years of service, and flying all over the globe, that I would have a successful 25-year career in investment management (and counting). While not immediately apparent, my experiences flying everything from basic transport assignments to more dangerous evacuations or mid-air refueling missions helped instill a respect for following certain principles and training in advance for what could go wrong. I’d like to share a few lessons I’ve learned from those experiences that I believe have significantly impacted my investment process; and has allowed me to navigate hundreds of clients through multiple economic cycles, in both bull and bear markets.
- Be Humble. Avoid overconfidence: It is impossible to manage a portfolio without occasionally making mistakes. Learning from those mistakes is what keeps me humble. As a pilot, overconfidence can lead to taking risks with the airplane that you shouldn’t take. Young pilots are especially susceptible, believing they are bulletproof. I’ve lost a lot of friends who flew airplanes. Overconfidence can kill, whether it’s flying an airplane or managing a portfolio. Humility teaches you the importance of not having to swing at every pitch, living to fight another day, and thinking about where you can be wrong. Humility helps you avoid overconfidence that can blow up your portfolio.
- In case of an emergency, don’t eject, sit on your hands and think: In early flight school we were taught to follow a certain set of procedures in case we encountered an emergency. If those procedures did not work, we repeated them, and if they still did not work, we were instructed to bail out. Unfortunately, the aircraft I would later fly during my military career was not equipped with an ejection seat, so we would often joke that in case of an emergency the procedure was to “sit on your hands and think” – in other words, don’t touch anything and don’t do anything stupid in the heat of the moment. Investors frequently do something stupid in the heat of the moment when they are frightened. There will always be reasons for investor anxiety: presidential elections, terrorist attacks, Brexit, government shutdown, Bird Flu, Y2K, wars, inflation, the list is endless. Investors should embrace a similar procedure rather than haphazardly trading in response to the day’s news. Don’t sell stock in Pepsi due to some event a newscaster or pundit stated was critical. Sit on your hands and first consider whether the crisis of the day has any bearing on the number of Pepsis consumed in India. If the answer is no, you shouldn’t be trading.
- The World is more than New York, San Francisco and Hong Kong: My missions would take me across the globe, often allowing me to spend weeks at a time in Europe, Asia, Africa or small towns in America. This has allowed me to experience firsthand how local economies function differently. Many investors, whether they have Ivy league schooling or traditional large bank training tend to not have an “American Perspective” – or understand how the economy outside New York or San Francisco actually works. My global perspective has impacted how I view investments. My broader and inclusive approach often leads me to ask “What impact does this news have on how many hamburgers are consumed in China, chocolate in Latin America, or soft drinks in Africa?”
- It Takes time: I wasn’t a good pilot until I flew for many years. I wasn’t a really good money manager until I did it for about a decade. Reaching that level assumes you’re willing to put in 100 hours a week, which means there isn’t much time for anything else. If you are only working a normal 40-hour work week, it could take you two decades to get really good at something. (“10,000-hour rule” asserts the key to achieving world-class expertise in anything is to practice correctly for 10,000 hours).
I hope these lessons resonate with you. If you have any questions regarding our investment process or your personal financial circumstances, please don’t hesitate to contact us.