Recently, I did some math and found that I have been on 44 planes since August 24, 2021. These flights included overnight flights from Atlanta to Europe or South America. Others were Ryanair flights in Europe at a discount of $15. And a few were Spirit Airlines flights from and to Vegas. I flew on average once every ten days.
You would think I enjoy flying after 44 flights. Truthfully, I hate flying. The whole experience is awful. The security lines are long, there is no room in the main cabin and tarmac delays are becoming more and more frequent. What is the worst thing about flying?
You are stuck in a tube of metal with no escape until you reach the ground.
It’s not only being stuck in metal tubes that bothers me. It’s being trapped in metal tubes at 36,000 feet over the Earth’s Surface, where you can experience the worst sensation in the world: turbulence.
As you’re reading, listening to music or napping, your stomach suddenly drops when the plane is suddenly jerked downward. The pilot tells all passengers to buckle up as the next thirty minutes will be bumpy. It’s going to be the most uncomfortable 30 minutes of your entire life as the plane is pushed in all directions.
You land safely, of course. Landing safely does not eliminate the anxiety and fear you felt.
Fear of flying is not logical. Planes are the safest form of transport, particularly commercial flights in western countries. Turbulence is not the cause of a plane accident, and your chances of dying in an airplane crash are 1 in 11 million.
As a comparison, the odds that you will die in a car accident are 1/5 000 .
I am confident that airplanes are safe. I am confident that turbulence does not pose a threat. I am confident of reaching my destination.
You know what, though? You don’t give a damn about logic or science when you’re flying at 36,000 feet and the weather forecast for your flight from Sevilla to Manchester is a column in red.
Yes, I flew in a path that was essentially red and orange. You know that you are in for a bad flight when the pilot tells you before your flight “strong headwinds due to the storm” will cause an additional 45 minutes on a two-hour and 30-minute flight. )
You don’t think about the tiny odds of a crash when you’re at 36,000 feet and have to endure two hours of being thrown around by Neptune. And you certainly don’t consider the fact that Ryanair is a company with a perfect safety record and zero fatal accidents.
Every bump, every sound, every noise is a sign of your impending doom.
From the ground, it’s simple to be rational and logical. Once you’re up in the air, what happens? When will the turbulence hit at 36,000 feet, then? Fear and anxiety replace rationality.
“Why do investors do dumb stuff?”
This is a good question, especially considering all the dumb things that happened in 2018. Why did people pay $60,000 for bitcoin or 50x the sales price of tech stocks, or buy NFTs.
Why didn’t retail investors just invest in market ETFs, and then go live their life?
It is very difficult to beat the market in the long run. (Thanks to all the personal finance advice you have ever received).
You don’t worry about “long term averages” when you are actively trading each day. You’re always concerned about the current situation.
If you made money, then you must have done something right, right? You must have done something well if you’ve made money. You’re bound to bet more.
Or perhaps your did not make money on the market but that of your friend. He’s been bragging for weeks about his “trading”. You’re bound to experience FOMO. You’ll want to be involved.
Bubbles are created in this way. A person who is already rich buys something, and then doubles down on it, expecting to be even more rich. Someone else, who has not touched the asset, but feels FOMO because their friends are rich, feels compelled by this to invest.
Active investing is risky, and it is not guaranteed to outperform. From the outside, it’s easy for you to see logically. When you are making this money, is it still logical? You believe you’re the exception. After all, you made the money. You are a genius. Keep going.
As a concept, investing is simple. Real life is not conceptual. It’s not a simulation. The 40-year perspective is not the way it’s lived. Real life is chaotic and emotional. Real life is emotional and chaotic. Your investments may have to cover your mortgage or the college tuition of your child. If the bear market continues for too long, you might have to delay your retirement by 3 years. A grand slam could speed up your retirement by 5 years.
The line on the chart is not the real life. It’s all the data points.
You can teach someone about statistics. You can show them how the market increases over time. What can you not teach them?
You’ll be ecstatic when you hit a big payday in the stock market. You’ll feel terrible when a bad stock choice has you in ruins. You feel smart when your stocks have risen 30% in the past year. But you also feel terrified when your portfolio is down 30% during a bear-market.
Emotions cannot be taught; they must be experienced. This is why investing can be so difficult. In the heat of the day, logic is often thrown out the window.
After a string of good stock picks you feel more confident. You realize that outperformance is rare, but think “What if I am the one who consistently beats the market?” You ignore the past 100 years and invest in your next investment.
If the stock market doesn’t rebound soon, you may have to postpone your retirement. The risk-adjusted return is better than it was a few month ago. You should buy more stock now because it is at a discount compared to a few month ago.
What if it’s really different this time? What if there is no recovery? You panic and sell all your stocks because you cannot tolerate another 1% decline.
Theoretically, investing is simple: just buy index funds and relax. In theory, investing is easy: just buy index funds and chill. But in reality, logic is not enough, and emotions are more important than rationality.
