Breaking Out
Summer has begun, and I’m reminded of how much I love this season. The weather is nice, the days are longer, and my kids are out of school.
A new summer favorite for our family is enjoying all of the monarch butterflies hatching in our backyard. Last week, we counted some 20 caterpillars on the milkweed plant. Now, there are no more caterpillars, just a handful of chrysalises and a plethora of beautiful monarch butterflies fluttering around.
The strength of these majestic creatures is quite impressive. During migration, they travel thousands of miles. Their mighty wings—wings that, if preserved, can last over a hundred years at a museum—are also impressive.
A monarch’s wing development is often an analogy for struggle leading to strength. It can be hard to watch a butterfly break out of their chrysalis. The fight and the struggle leads you (the spectator) to want to assist, but it’s in that fight that builds the strength those wings will need to survive. Simply put, helping would be harmful to that butterfly and inhibit its ability to survive.
The chrysalis is a feature, not a bug. The chrysalis is the weight room, the necessary training needed to equip that butterfly to do what it was created to do.
Transparency
My 5-year-old ran into the screen door last weekend. He’s also the same child who nearly got a concussion when he tried to run into my office – through the glass wall – to greet me. He hit that glass so hard that David Bahnsen popped out of his office, thinking we were under attack.
His reaction to running into the screen door made me laugh, “Daddy, why does this have to be see-through!?” An appropriate inquiry, I suppose, but the answer is simple, “So you can see through it, son.”
The transparency is a feature, not a bug.
Not for the Faint of Heart
This is a pattern of theme of life, right? We don’t like what feels painful even though we enjoy the associated benefits. The butterfly might hate breaking out of its chrysalis, but that same butterfly loves the strength of its wings. My son appreciates the summer breeze through the screen door, yet he grumbles about its transparency. We despise the painful parts but celebrate the benefits that sit on the other side of that very same coin.
Sometimes, investors fantasize about a mystery investment that could generate a return, be highly liquid, and have a stable/consistent daily value. They are often surprised when I tell them this type of investment does exist. On the edge of their seat, they say, “What is it?” and to their disappointment, I say, “A savings account.” Why the disappointment? Because the returns are less than desirable in a savings account.
Therein lies the rub: investors want HIGHER returns. “Oh, higher returns,” I say, “Well, that’s the stock market.” Yet, we know the typical response there – a general disgust for volatility. For some reason, long-term investors simply hate the short-term price movements of the stock market even though the market is known for delivering long-term favorable outcomes.
But what if this is a feature, not a bug? It’s this volatility that weeds out short-term investors who don’t belong in the stock market. It shakes out the worrywarts who are not deserving of the long-term benefits markets produce. Who’s left? Long-term investors who show up for the return premium offered to those willing to endure that volatility.
Could it be, just like a chrysalis or a screen door, that those benefits of the stock market are paved by the very pain of volatility? I believe so.
Don’t Curse your Blessings
Regardless of your age, you always have an opportunity to mature and grow. One thing I am focusing on in my life is to cut out the grumbling and complaining.
I’m a thinker, an analyzer, and a critic. This little personality cocktail is a breeding ground for also being quite the grumbler. I can go zero to complainer real quick.
A little exercise or commitment to shake this habit is to remind myself of all the things I’ve prayed for in the past. For me, this is things like a wife, kids, a career, etc. These are also popular categories for complaining, an opportunity to sulk in the petty and trivial issues of the day. So, I try to remind myself, “Don’t curse your blessings” or said another way, don’t complain today about the realities of answered prayer from yesterday.
Even in the times of actual trial, we are told to “Count it all joy” (James 1:2). Why? Because it “produces” something, it produces endurance, and endurance leads to a perfection and completeness, as James puts it.
It Doesn’t Come Naturally
What I am talking about here doesn’t come naturally to us. It involves training the mind and reframing how we see things.
For an investor, this means embracing volatility as a positive, not a negative. To see volatility as a feature, not a bug.
David Bahnsen often describes that he invites lower prices where his dividends can be reinvested at more attractive entry points, buying more dividend-producing shares.
What David did there is a sort of investor judo move. Judo is a fighting style that seeks to use its opponent’s strength and momentum against them. If volatility is the opponent, then, as David described, you simply convert that negative price pressure into your purchasing benefit. If you’re an investor spending down your portfolio, you can ignore that volatility noise; your plan depends on resourcing those dividends to cover expenses, not selling shares at depressed prices. Price becomes irrelevant.
A Good Reminder
This topic, this conversation, and this subject are always worth revisiting. We like the upside to volatility when prices surprise us with an abnormally high increase, much like the first half of this year. Yet, we know this cuts both ways, and it’s important to ground ourselves in the truth of volatility. If we want to enjoy the benefits, the returns, and the upside, then we must embrace the volatility accompanying those benefits.
Count it all joy, fellow investors, it’s that very volatility that build up your stamina. The chrysalis is to that monarch what volatility is to you as an investor. No pain, no gain.
Volatility, it’s a feature, not a bug.
Trevor Cummings
PWA Group Director, Partner
tcummings@thebahnsengroup.com
