This week let me start with a joke.
Fred and Bill are riding in Fred’s car and when they come up to a red light Fred just drives on through. Bill says “Are you crazy, running a red light?”. Fred says “Don’t worry, my brother does it all the time”. Fred continues to run red lights with the same assurance about his brother. Then he comes to a green light and then he stops. Bill shouts at him “Now what?” and Fred says “Well my brother might be coming the other way”.
To me that is a very important story. We have a tendency to sweat the smaller stuff, because it’s easier to think about. Fred can visualize his brother coming the other way, not the other million cars that might be when the light is red for him.
A real life example. The US has spent many, many billions of dollars preventing a reoccurrence of deaths from 9/11. Yet 10,000 Americans die every year because congress hasn’t required cars to have electronic stability control (to prevent rollovers), which would add about $400 to the price of a car. 9/11 was a horrible act, no question. But 10,000 dying every year? Why aren’t people shouting from the roof tops? Where are the billions for that? Because 9/11 is a single event they can get their arms around. Traffic accidents happen in the millions, and it’s hard for us to sweat that big stuff, it’s so big.
Investing is exactly the same way. Some Investors might be afraid of the recent market downturn, or about something someone said on CNBC. Some of those same people are 55 years old and have a total of $50,000 in a 401k for their retirement and $20,000 in credit card debt. That’s what should be terrifying them. They are looking down the barrel of the proverbial ‘dog food’ retirement and they are sweating a single market correction.
And we worry too much about Fred’s brother coming the other way. Enron and a few other problem companies scared many people out of the stock market in 2002. Yes that was a bad situation. But investors ignored the 10,000 other well run companies out there. If you diversify, the Enrons will not be devastating to your portfolio. But investors were so afraid if Fred’s brother coming the other way they missed the green light right in front of them.
Sometimes it’s hard because the big things are big, and they are familiar, we become inured to them. We all have to remind ourselves to forget Fred’s brother and sweat the big important stuff.