Evils That Never Happen

Never put off till tomorrow what you can do to-day.
Never trouble another for what you can do yourself.
Never spend your money before you have it.
Never buy what you do not want, because it is cheap; it will be dear to you.
Pride costs us more than hunger, thirst and cold.
We never repent of having eaten too little.
Nothing is troublesome that we do willingly.
How much pain have cost us the evils which have never happened.
Take things always by their smooth handle.
When angry, count to ten, before you speak; if very angry, a hundred.


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I recently received a small framed version of Thomas Jefferson’s 10 Rules to Live By.  When I saw it I was immediately struck by how very pertinent they are to much of the advice I offer as both a financial and life advisor, and by how far I have to go myself to fulfill several of them.  Jefferson’s Rules is a useful tool by which each of us may take a personal inventory. 

I divide my own behavior into three categories:  

  1. Those that I do not generally violate (3)

  2. Those that I tended to violate in the past, but have made substantial intentional improvement (4)

  3. Those on which I have more work to do (3)

 Thomas Jefferson

Thomas Jefferson

These days I am particularly interested in this one: “How much pain have cost us the evils which have never happened.”  In a time of greater market volatility, national political and geopolitical concerns, and technological change, it is natural to worry, and worry is often painful.  As a financial advisor, this maxim goes to the very heart of the notion of risk: that which may well have never happened, but about which we nevertheless worry. Our human minds, both extraordinarily powerful and extraordinarily vulnerable to errors, are capable of imagining and manifesting both microscopic integrated circuits made of silicon and war on entire cities of civilians (as is currently occurring in Ghouta Syria, sadly without meaningful protest from the world). Risk is that which may well be present, but cannot be seen. We do our best as advisors to detect those risks, diversify them as much as possible, and get paid on your behalf to assume the quantities of risk that remain.

But we cannot get rid of all risks, so-called systemic risks, or we would get rid of all returns, and those that remain we cannot afford to take the time and energy to worry about, or we would never get anything else done. “How much pain have cost us the evils which have never happened.” And so here are some things that have never happened that I wish to remind you of.  

  • The stock market has never delivered a negative return over any ten year or greater period.

  • The stock market has never failed to surpass its previous all time highs.

  • The stock market has far outpaced cash over history.

  • The stock market has far outpaced bonds over history.

I cannot guarantee you that these “nevers” will never occur, only that I cannot afford, either on my own behalf or on yours, to mentally generate the pain and anguish that they might. You are paying me to guide you in a world of market history and realities, not a world of my own imagination or yours.

I close this month by recalling a dinner I had about a year ago with Robert Novy-Marx, one of the finest finance academics in the country, an important consultant to Dimensional Fund Advisors (he developed the theoretical foundations behind DFA’s latest “Profitability Premium”), and my brother-in-law’s great friend and best man at his wedding.

At our dinner I speculated that the persistent return premiums that have existed in markets – stocks outperforming bonds, small companies outperforming large ones, and value priced companies outperforming growth companies – could one day reverse. I was indeed speculating about evils that have never happened with one of the great minds in finance.

Robert smiled, and without a trace of pain or worry, looked at me and said with confidence: “I don’t think so.” I put down my worry, smiled myself, and proceeded to enjoy dessert, knowing that I would soon be repenting for having eaten too much.

 
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