Psychology

Today SpaceX launched its new and massive Starship rocket on its first test flight, and the event ended with a flourish. By “flourish” I mean it exploded in spectacular fashion.

One of the more confusing things that seems to be tripping up people unfamiliar with such tests is the reaction of SpaceX employees on the live feed. At the moment when the rocket experienced its “rapid unscheduled disassembly”, rather than hanging their heads in failure the entire team erupted in applause. It’s easy to wonder what world they’re living in.

But engineers watching the event understood. The greatest design achievements are never achieved flawlessly in a single step. If they were, they wouldn’t be such great achievements! So rather than planning forever for a reality full of unknown variables that we’ll never truly understand until we finally hit the launch button, we celebrate failures for what we learn. And we press on creating something even better.

If you’ve ever found yourself evaluating portfolio ideas for the thousandth time without making a decision, stop for a moment to think about the flight crew cheering their work going up in flames. I’m not saying you should make hasty financial decisions. Be smart about it and start small. But at the same time, don’t be afraid to try or regretful when things don’t go as planned. Embrace each small failure as a required educational step towards your long-term success, and before you know it you’ll be enjoying the view from orbit.

My personal neck of the woods recently experienced a pretty significant ice storm. While uncommon, they’re certainly not unheard of and I’ve lived through several memorable examples. But this is the first time I witnessed one from the cozy confines of a home facing an expansive treeline. And man — that was wild.

The whole world is watching the ongoing financial carnage resulting from the FTX collapse, and every revelation is truly a sight to behold. I’m definitely working on my own article discussing the situation, but an extended writeup about greed, corruption, and downright stupidity just seems painfully out of place during the week of Thanksgiving. To highlight the worst in the world completely misses the point.

So in honor of my favorite holiday, let’s take a moment to turn off the inflammatory news and appreciate the good things in life. You only get one, so don’t waste it being angry or disappointed.

Happy Thanksgiving!

The Tuesday after the first Monday in November seems arbitrarily ordinary when you write it out like that, but for US investors it carries a unique importance. It’s election day. That day came and went on Tuesday to much stress and fanfare depending on whether your favorite candidates or ballot measures won or lost. I don’t know about you, but I could use a break.

The beauty of asset allocation is that it transcends party affiliation. Sure, politics affects markets. But diversification is there to help no matter who is in charge, and the sovereign law of compound interest doesn’t care who the nightly news is talking about today. Wise portfolio construction is the level head that steadies the ship in both calm and stormy seas.

So as you detox from the political bender affecting all of us, maybe take a moment to appreciate the stable things in life. Find the right portfolio, turn off the news, and take a walk outside. In both politics and money, the quiet voice of calm clarity requires focus to hear over the din of loud, attention-seeking voices. But it’s worth the effort.

I’m moving next week, and even though I still have a few days to go I’m already pretty spent. From the decision to find a new place to the painfully long search and ultimately to the final move, it consumes so much physical and mental energy that at some point you inevitably wonder if it’s really all worth it. As I think past the near-term pain and anxiety to the post-move future with more space, a nice view, and significantly lower rent, I know things will eventually work out and we’ll look back fondly on our good choice. But that still doesn’t diminish the reality that moving is hard.

In a moment of brief silence lost in a day full of errands, it struck me that I’ve felt this way before. And it wasn’t even in another physical move like the one I’m caught up in now. Now that I think about it, making a big financial decision can bring out a lot of the same emotions as changing the place you call home.

With everything going on in the world right now — protests, war, and floundering economic systems — it’s natural for even the most confident investors to have doubts. Our best plans are still based on certain rules and assumptions, and our own lived experience shades our perspective more than we probably realize. So when the world suddenly seems out of control and beyond our comfort zone, things we formerly took for granted feel a lot less stable. Like walking a lonely road with no idea what is over the horizon, it can be a unsettling experience.

Now I certainly don’t have the answers to every problem in the world. But when it comes to investing, the good news is that you actually don’t need those answers to protect yourself. The cool thing about studying financial history is that no matter how crazy things feel today it probably pales in comparison to events that your parents and grandparents dealt with. And by understanding how certain portfolios handled those stress tests, we can choose one more likely to stand the test of time.

So if you’re watching the news and worried about what it means to your important financial goals, here are a few tips for setting your portfolio up for success no matter what happens.

It was a beautiful, warm, sunny day without a cloud in the sky, and I took full advantage by going on a walk downtown and over the river to my favorite hill to sit and enjoy the view of the skyline. The scene was a welcome break from the stress that filled my life recently, as family issues were weighing heavily on my mind. But eventually an urgent text beckoned me, so I grabbed one of the many nearby scooters that fill urban settings these days. And off I went, the sun on my back and wind in my face, zipping through the bustling streets on my way home.

Familiar surroundings and pressing anxiety make for interesting bedfellows. On the one hand, I was in my comfort zone on a picturesque day. And on the other, my mind was racing to where I was needed most and the scooter kept a similar pace. A passing jogger here. A left turn there. And then boom. Maybe it was a bump in the road or a hair trigger accelerator — I honestly don’t remember. But the end result was a collision with an immovable concrete wall at an alarmingly high speed.

That was the last time I walked without crutches.

As an engineer by training, I’ve always been comfortable with the use of historical numbers in decision making. From empirically tested yield strengths that inform design specifications to segmented sales numbers that inspire new product ideas, making wise choices is all about putting good data to productive use. And as one can see by perusing the deep data focus of Portfolio Charts, I naturally apply that same mindset to investing.

So one of the things I admit I’ve had to adjust to over the years is something that I never really experienced in my engineering career. When it comes to finance, some people are just really dismissive of historical data.

It’s common in some circles for people to quickly shut down any discussion of past returns as the foolish discussion of unrepeatable events. Some reflexively point to specific timeframes that surely skewed the numbers in deceptive ways. Others explain how current events are very different than the past and proclaim that the old results are ancient history. And a surprising number have developed an outright distrust of math and statistics as the tools of unsophisticated investors and financial snake oil salesmen.

To be fair, these opinions are often born of legitimate examples of data abuse. Lots of people misuse statistics all the time or naively apply them out of context, and I totally understand how backtesting gets a bad name. But in my experience, the problem is not with backtesting but with backtesters. It’s super valuable when done correctly, but you have to know what you’re doing and approach it in the right way.

So to cut through the financial cynicism, I’d like to share three short stories about real-world situations where the use of historical data is widely accepted. By exploring how data is used well, perhaps we can learn a thing or two about how to also apply it effectively it in our personal portfolio decisions.