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Wednesday, August 17, 2022

The Volatility is the Point

The quickest way to out yourself as an amateur investor is to post comments online mocking others for being in a stock, sector or asset class that’s undergoing turbulence.

Not only does this reveal to others that you’re not actually an investor yourself, it also tells everyone how little class you have. Nelson from ‘The Simpsons’ may have gotten his trademark “Ha ha” in whenever someone slipped and fell, but he still had to trudge back to his mom’s cigarette smoke-filled trailer afterward.

By acting as though there’s something wrong or risible about another investor enduring a drawdown, you demonstrate to everyone watching that you truly don’t understand the nature of investing. You don’t grasp that returns only come to those who are willing to bear that volatility when others won’t.

The volatility is the point.

It is the growling guard dog that keeps others away and safeguards the opportunity for you, if you dare.

It’s the reminder that the road to wealth isn’t freshly paved blacktop. As Logan Roy explained to his son this weekend, “It’s a fight for a knife in the mud.”

Its the governor that forces us – me, you, everyone – to be thoughtful about the size and nature of risk we’re about to take.

If not for the volatility, the fluctuation and drawdown, the pain of seeing dollars on a screen disappear, then premium returns over the interest rate on a checking account would not exist. That’s where the term ‘risk premium’ comes from. No risk, no premium. Showing off your ignorance of this concept lets everyone know how immature, inexperienced, uninformed and short-sighted you are.

Real players of the game know this. That’s why you never see them cackling at others over losses, be they temporary or permanent. Anyone who’s ever accomplished anything in the investment markets has lost. Many times. Lost big. Will lose again.

You cannot win if you are unwilling to lose.

It cannot be any other way.

Pretending otherwise – whether believing in magical formulas on spreadsheets or thinking the the secret to risk-free returns can be found in books (or worse, on TV) – opens a window on your childishness for all to see. It’s embarrassing. This should be hidden away, not posted to Twitter, not revealed in the comments section of a blog post.

Some advice for those who are somewhat new to the game:

Learn to live through volatility rather than pretend you can hide from it.

Avoid rubbernecking at the misfortune of others. Your time is going to come as well, so long as you’re actually in the markets and not just playing a hedge fund trader on the internet.

Keep your opinions about the drawdowns of others to yourself. The risks you are willing to bear will be greater or lesser than the risks being borne by others. This will be a function of what each of us is attempting to achieve. And what we’re willing to go through in order to achieve it.

Stop telling on yourself. Displaying your reactions and emotions to the daily gains and losses of this endeavor just screams “Piker.” And being a piker is the very worst thing you can be in this business.

Learning to carry oneself as an investor is a big part of actually becoming an investor. Behavior is as important as anything you’ll read in books about strategy or technique.

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