“For even peace itself will supply more reason for worry. Not even safe circumstances will bring you confidence once your mind has been shocked – once it gets in the habit of blind panic, it can’t provide for its own safety. For it doesn’t really avoid danger, it just runs away. Yet we are exposed to greater danger with our backs turned.”
– Seneca, Moral Letters
You’re a young person just beginning to invest. You dream of someday having a large portfolio – $1 million, $5 million, $10 million invested. Do you think you’d be at peace then? Do you think you’d be calm or satisfied?
I can tell you from experience that you won’t be any of these things.
You’re an older investor who has done well in the markets over years and decades. You dream of a peaceful period for your holdings and a dwindling of volatility. And then we get into 2017 – a year in which, so far, we have experienced the lowest maximum S&P 500 drawdown in the history of the index. That’s a fact – 2017’s biggest dip this year is just under 3% from the high – this is unprecedented. We’ve never been in such seemingly safe circumstances.
Are you now at peace, then?
Absolutely not. At least, you’re not at peace if you’re rational. This cannot continue forever and you know this. Today’s “safe circumstances” cannot bring you confidence once your mind has been shocked. And in the last twenty years, it’s been shocked plenty.
Nick Murray would remind us that this permanent condition of the human mind is why god sent advisors into the world. And this demonstrates amply why the need for advice never goes away.
The Seneca quote at the top comes from today’s entry in Ryan Holiday’s excellent book The Daily Stoic. Seneca understood that it’s better to wish for inner strength than for safe circumstances or good fortune or eternal peace. Holiday elaborates:
If your mind has developed a certain cast – the habit of panicking, in Seneca’s example – then it won’t matter how good things get for you. You’re still primed for panic. Your mind will still find things to worry about, and you’ll still be miserable. Perhaps more so even, because now you’ll have more to lose.
This is not a dismal conclusion being drawn here. Rather, it’s a reminder that working on your character is more important than hoping for tranquility and searching for a finish line that doesn’t exist. This is why strong advisory firms focus so much of their time and energy on the behavioral aspect of investing. It is the investment that pays off when the investment markets themselves turn against us.