I’ve been watching Away, a Netflix series which charts a mission to Mars through a human and emotional lens rather than a sci-fi one. As I lay on my sofa, lumpen-like on Planet Earth, one line from the ‘Commander’ resonated so much. She said (and I paraphrase), “Being a good astronaut is not about being the best at science, or having the best physical strength or being the best engineer. It’s about resilience.” That to me summed up 2020. My friends, we find to find our inner cockroach.
I thought about it this week when answering questions about the business from potential investors on our crowdfunding pages. Success is not about the shiniest ideas, or the best PowerPoint, or the sexiest pitch. It’s getting up, day in day out, taking one step forward even if yesterday pushed you 7 steps back, and having that dogged and determined focus on execution. (Not of the French Revolution sort however tempting that might feel, but the Doing sort). This thought process I think applies just as much to the bigger global firms that most of us invest in. Are they resilient – both as a company facing changing market conditions and ultimately as a bunch of human beings and Directors facing difficult times. For me, the more I learn about business, the more I consider broader resilience as much as any number on a spreadsheet.
Global stock markets are also looking pretty resilient this week. The tech-laden NASDAQ 100 index in the US has fallen about 10% from early September highs. Poster child Tesla is off about 7%. Apple is down about 16%. But JP Morgan market boffins came out yesterday to say that they think this tech blip, or this ‘Nasdaq 100 selling correction’ has run its course. And there’s certainly no panicked freefall going on – things are pretty much where they were a week ago and a month ago. And breathe… for now.
We need resilience to manage knock-backs. But we also need resilience to deal with the unknown. At the moment we don’t know whether we can book a holiday, see our friends, plan Christmas or whatever. At this point in time we are collectively miserable because we hate the unknown. And this hatred of the unknown – I think – explains most people’s attitudes to investing.
Any financial services provider will use the word ‘risk’ on a non-stop basis. You’ll even find the words ‘capital at risk’ at the bottom of today’s blog as I mention our crowdfunding. But risk is not the same as uncertainty.
A risk situation is where all the variables are known, and where an analysis can calculate the probability with accuracy. Gambling falls into the category of risk. With a roulette wheel you know how many red and black slots there are and therefore know the odds of the ball landing in one or the other. As long as the casino is ‘honest’, you know all the variables in order to make a calculated decision. This is why investing is certainly NOT like gambling.
An uncertain situation is where one or more variables are unknown. This is of course where investing and the stock market sit, not actually in the risk category. In these situations, it’s rules of thumb which enable us to make a better decision. So I think the entire investment industry is built upon foundations that set it up for failure to inform and communicate – when we try and communicate uncertainty in the language of risk, we confuse and bewilder customers and move them away from natural and comfortable decision-making patterns.
“OK. How risky, O Smarty-Pants-Good-At-Maths Person?”
“I couldn’t possibly tell you that.”
I leave you with a final thought from a research project we conducted a few years ago, which has stuck with me ever since – and helps to explain how people react to the concept of investing and uncertainty. Most of us find peace of mind in having some semblance of control.
We gave people the hypothetical opportunity to take part in a lottery which gave an equal chance of two different sets of lottery numbers coming up – one set chosen by you and one set chosen at random. 19% of respondents told us they would pay twice as much (£2 rather than £1) for a ticket where they were able to choose their own numbers. Even though the odds of success are the same!?!?! This minority of ‘controllers’ was found consistently across investors/non-investors, genders, age groups and household income. I do love us illogical human beings! 1 in 5 loved the idea of being in control so much that they were prepared to pay twice as much for the same outcome… these poor folk will be doubly hating 2020 where controlling what you have for breakfast is about as far as it goes.
A final thank you to all our readers who saw the opportunity to buy shares in Boring Money as known uncertainty more than uncertain risk. We have raised about £730,000 to date and will close this funding round shortly. Thanks for backing us – and we look forward to unveiling our more beautiful selves in a few months’ time.
Have a good weekend everyone. I’m going to abandon any sense of control and slide into the unknown on a chute of sauvignon, Netflix and grouse shooting with 30 chinless chums.*
* One of those statements was a lie.
**To my untold glee, I have discovered that Nadezhda (Russian - Надежда, Hope) was a cockroach that was sent into space during the Foton M-3 bio-satellite flight between September 14 and 26, 2007. Not only did Nadezhda survive, she also managed to conceive 33 babies in space! You go girl. A multi-tasking and resilient inspiration to us all.
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