Our bodies are a wonder; a delicately balanced mix of interconnected systems that help us navigate the world around us. One example is the stress response system and we thought it might be fun to dive in to see what it can teach us about successful investing. Hang with us, we promise we’ll bring it around.
When we are introduced to a threat in our environment, our body’s stress response system is activated and it produces one of three reactions: Fight, Flight, or Freeze. The goal of the stress response cycle is to move us from threat back to safety.
For example, imagine it’s a thousand years ago and you are being chased by a grizzly bear—a stressor, to say the least. Your stress response system would be working to decide if the bear could be conquered (Fight!), escaped (Flight!), or not sure (Freeze!). Say your mind determined that fleeing was the proper response to the charging bear… it would tell your body to RUN. Given some luck and a few well-timed juke moves, let’s assume you’re successful outrunning the bear. The next morning, after the adrenaline wears off, you’re safe back in your village with your tribe and a heck of a story. Feeling pretty good, stress response cycle complete. Even better, successfully facing and overcoming challenges typically leads to growth… maybe you’re even now in line for leadership!
Now imagine it’s a “bigger than his britches” warthog charging, you might consider fighting believing you have a good chance of conquering this particular stressor. Slay the warthog, complete the stress response cycle, still have a good story for the tribe, and home safe again. Maybe still even in the running for chief. All good.
But what if the stressor isn’t a bear to be escaped or warthog to be conquered? What if moving from threat to safety isn’t so clear and well defined and we’re unable to determine whether fighting or fleeing will successfully get us back home? In these instances, our body’s natural response is to freeze. In nature, it’s this response that literally causes some animals to play dead in the face of a predator! Lying on the ground in the fetal position doesn’t make for much of a good story or leadership resume.
Enter the idea of a chronic or persistent stressor and fast forward to present day. The media environment poses just such a threat. Bad news and worries are everywhere and the next bear (market) is lurking right around the corner. Today it may be D.C. politics, a potential trade war with China, unrest in Syria or Hong Kong, or any number of attention-grabbing headlines. Tomorrow it may be something else… we’ve observed over time that it’s always something. And it’s not easily escaped or conquered, which is why often our most natural reaction as investors is to freeze.
So how do we get back home, back to safety? In our view, it’s a matter of changing our time perspective. Our optimism and confidence in investing is rooted in buying and holding good assets at reasonable prices, riding out the temporary ups and downs of the market and letting them produce income and increase in value over time. Experience tells us this will produce healthy investment returns over the long run.
We’ll admit this isn’t easy, especially now when the stressor feels like it’s coming at us at all times and from all directions. But we believe it is essential to cool-headed successful investing and it is a reliable breath of fresh air in a topsy-turvy world. So fight! Or better yet, let us fight for you.