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Tuesday, July 2, 2013

Reacting to the Bear

I recently wrote about my downsizing.  After more than 30 years in beautiful Howard County, Maryland, my wife and I looked around one day, saw that the kids were out of the house, saw empty bed rooms and a rec room basement that was hardly used.  We decided it was time to make a change.  We downsized to a considerably smaller abode in the mountains of Virginia.

One of the adjustments I had to make was to figure out a workout routine.  I've never been attracted to health clubs and the sort - instead, I have preferred using whatever is at hand.  I settled in on hiking.

As it turns out, there are gravel roads going upwards looking out to our cabin from the right and the left.  I settled on a routine where I would first hike the road to the right of the cabin and then come down and hike the roads upwards to the right.  It turned out to be a real good workout where I could adjust my pace, get my heart pumping, and come in at the end completely drenched.  Truth be told, I read on Yahoo! somewhere that the best workout was cranking up the angle on the treadmill to the highest level and then walking.  No jogging required.  This was the outdoors version.

And, this worked really well the first couple of weeks.  Until, one day when I (reason unknown) invited my son.  We hiked around the bend to the right--I pointed out that the rocks were at right angles to the ground and mentioned that I wondered about the powerful forces that shifted these rocks.  I pointed to the crevice where on a previous day I saw a large lizard enter.  And we went higher.

As we moved higher up the road, I pointed to the woods on the right and mentioned that Dusty, our dog and companion on the hike, had entered the woods and had come running out on previous hikes.  I wasn't sure why this was.

Near the top on this particular day, Dusty was in front, then David about 15 yards back, then me about 10 yards back of David.  Then, David stopped, put his right hand in the air, and pointed to the right. There standing against a tree and scratching was the biggest bear I had seen in the wild outside of a zoo and south of Alaska.

I have to say that these animals are bigger than you expect  when you see them in the wild.  We came across a rattlesnake in the Shenandoah one time and, to this day, I tell people that I couldn't believe how big that thing was.

As we sized up the bear, David whispered "Dusty," who was busily sniffing the trail, to hopefully get him to turn back; but this, of course, got him to look up and notice the bear--after which he bolted.  For those who don't know, bears are really fast.  The bear took off, Dusty eventually gave up his pursuit, and we cautiously backed off.

Today, I don't hike that particular section of the road.  I come by this behavior genetically.  It is why my ancestors were not eliminated from the gene pool.  Genetically we are wired to back away from danger. INTERESTINGLY, THIS SAME BEHAVIOR WILL ELIMINATE YOU FROM THE INVESTMENT POOL.

Think back to early 2009.  The market was devastated.  In 2008, stocks dropped 37% and then dropped sharply from there in early 2009.  As Baron von Rothschild would say, "there was blood in the streets." The bear was on the prowl.

If you were in the market, your genes were screaming in 2009 to get out before the world came to an end.  An interesting question is how many did get out and never returned.  There were a lot.  But those who stayed actually recouped all of the downturn and are ahead today.  Those who could fight the instinct to run for cover and could put on their buying hats prospered greatly.

The ability to stay and not alter course is key to a successful investment philosophy.  The failure to do this is why most individuals and professionals underperform the market.

Anyone up for a hike?


  1. Nice story but my genes tell me where there is risk there is also the potential for rewards. You can climb, do the job, fall, get shot like King Kong, it all depends on balance. Buying or selling is the ability to tell the bull from the bear, and yes I am always ready for a hike!

  2. If your genes can keep you invested in down markets count yourself lucky. Studying mutual fund flows reveals that most investors pile in after markets go way up and jump like rats from a ship at market bottoms. This includes individuals as well as professional investors.
    Warren Buffett has been the best. He is to investing what Michael Jordan is to basketball. The so-called "Buffett gene" is akin to taking off from the foul line and dunking the ball. Not that easy for most people.

  3. great couple of columns, Robert. Haven't had that particular encounter in my neck of Virginia, but expect I will ...

    1. Thanks! I'm learning a lot living here - snakes like trees, keep your head up when hiking and its good to have a good dog.

  4. Nice story, so true about your thought on the psychology of investment. What make our gene survive to this day also make use bad investors.

    1. Realizing it is step number 1, I believe, in getting to a successful investment philosophy.

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