Walking In Memphis

My oldest son, Ben, broke his leg skiing earlier this year. While the break wasn’t bad, the recovery wasn’t very much fun for a 10-year-old. Imagine your world going from happily running around with friends to suddenly needing help to get to and from a wheelchair. Not fun.

In that situation, it’s easy to feel like the reality you are in now is permanent. That there is no light at the end of the tunnel. No hope for a better future.

I know this from personal experience. Many years ago, I had surgery that didn’t go fully according to plan. As I was going through the ups, but mostly downs, of the complications, a surgical fellow happened to call on me at my hospital bed. Sensing my dark mood, he tried to cheer me up by saying that 6 months from now I would be laughing about all of this at the beach.

I had to restrain myself to not snap at him, since the beach was the last thing on my mind, and I was just focused on getting through each day. And no, I wasn’t laughing about it on the beach 6 months hence. However, in time everything turned out fine, and sometimes when I am walking on the beach I am reminded about that fellow and what he said.

So, when Ben started working on his recovery, I could relate to what his mental state must have been. To how the mind just takes the misery of the previous days and assumes that is all there will be as far as the eye can see into the future.

I wanted to give him something positive to look forward to, so I asked what he thought about the two of us going on a fun trip somewhere together once he was fully recovered. He liked the idea, and we agreed to do it once he could walk normally again.

Two weekends ago, Ben and I went on a trip to Memphis. It was hard to believe that it was only 8 months since his injury. We walked all over the city and had a great time. I reminded him how far he had come from those darker days when we had made our initial plan to go. The days when it seemed like there was no hope for a better future.

Walking in Memphis made me reflect on how the same phenomenon occurs in other parts of our lives. How our minds take the recent past and convince us that that is how the rest of our days will be.

Which made me think of today’s stock market.

The last few years have been painful for me as a long-term value investor. Investment decisions that were well-considered based on a time-tested process frequently led to mixed outcomes. In the meantime, rank speculators have been making easy money hand-over-fist trading who knows what – from story stocks to pretend currency.

It’s not a lot of fun when not only are you not getting validation from decisions you consider sound based on process, but you see others seemingly use no process at all yet achieve easy success. It would take superhuman mental strength to not be affected by this at all, and alas I don’t think many of us can boast of being superhuman.

If this were a matter of a few months or a year, that would be easy. However, when this goes on for years, the days of past successes seem like a distant memory and the pain of recent challenges becomes all you can remember. After a while, it is easy to come to the mistaken conclusion that this pain is all the future has to offer. That one needs to abandon previously rigorously tested conclusions about investing to achieve success in this new market reality.

That would be a big mistake.

The pain is real. It is healthy to use it to question your assumptions and to use it to help you become a better investor. It is not healthy, however, to make unwarranted changes just to try to avoid what seems like never-ending pain.

The laws of financial gravity have not changed. Just like the body over time healed Ben’s leg and allowed him to walk again, over time financial markets heal extremes. Sometimes that takes longer, but it still happens. The cycle of fear and greed in investor psychology is a permanent feature of markets as long as humans are involved in some way.

I have used my own pain to drive myself to be a better investor. My process is stronger. I am more resilient. I am both deservedly humble about the recent challenges and very confident in the soundness of an improved long-term value investing approach.

If there is one thing that markets remind us, over and over, is that the future is going to be different from the recent past. Many a carefree speculator is likely to be humbled as markets return to a more normal state, and diligent investors following a sound process will be rewarded. Don’t give up hope just as the future seems darkest based on the pain of the recent past.

I wish you and your family a happy and healthy New Year!

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About the author

Gary Mishuris, CFA is the Managing Partner and Chief Investment Officer of Silver Ring Value Partners, an investment firm that seeks to apply its intrinsic value approach to safely compound capital over the long-term. He also teaches the Value Investing Seminar at the F.W. Olin Graduate School of Business.

Note: An earlier version of this article was published on the Behavioral Value Investor Substack