I often think about the travelling I have done in the past as I have been very fortunate to visit many wonderful and diverse places. In many cases, the harder it was to get there, the greater the experience was at the final destination. In particular, air travel can be quite interesting, having to withstand cancellations, lost baggage, farm animals in the passenger cabin and of course turbulence.
As I sit 35 000 feet in the air, going through a particularly rough patch of turbulence, I find myself thinking about the remarkable similarities between turbulent flights and turbulent markets. I know that this is probably not what you spend your time doing on a flight but I suppose it is a strange by-product of being involved in this industry for the last 20 years.
Airplane travel is an efficient way to get from point A to point B within more or less a defined time period. Investing, in the context of planning to reach a goal (eg. Retirement planning) is also a way of getting from point A to point B within an acceptable and reasonable time frame.
Today’s planes are built with the latest technology, based on decades of research into how and why turbulence occurs. Although aircraft are built to withstand turbulence, other advancements in aviation technology now allow pilots to detect upcoming turbulent air and to make small changes in their flight path to minimize the bumps along the way. So far, I have yet to be on a flight where the pilots completely panic at the first sign of turbulence and choose to land the plane wherever on the flight path they may be. I am not sure if I would want to fly with those pilots again if they did.
Stock markets and portfolio construction are very similar. We build portfolio’s based on decades of research in a way that makes them an efficient vehicle to reach a financial goal. En-route to reaching our destination, history tells us that we will inevitably hit some turbulence. Making small adjustments to our course during these times will sometimes makes sense, but not being invested, like landing the plane, is usually an overreaction that will prevent you from reaching your goal.
I don’t like turbulence. It’s the reason I don’t love flying, however as I have become more experienced with it, and have learned that most planes are built to deal with it, flying has become more enjoyable. I don’t like choppy markets either, however if you have an investment portfolio that is properly constructed, you should not get distracted by turbulent markets. As a result you will have a much better chance of reaching your destination on time.