What Captain Sully Taught Me About Investing
Without being pedantic, I want to address a fascinating truth about investing. Choosing an investment consultant is not a mathematical decision.
It's an emotional one. How could it be anything but emotional?
Here's the math we've got: past performance. Here's the world we live in, that will determine whether we have enough money to last our lifetime: future performance.
So, let's put the math we have to the test. Let's measure our investment performance against a bucket of stocks, call it the S&P 500.
It seems logical to take that route. I guess that helps do-it-yourselfers and our younger selves in undergraduate school. Measuring past performance for the mutual fund managers might be a good idea. That's a way to say, well, did you do what you said you would do or not?
But even if I do beat the S&P 500, that does not mean I will in the future. Strike one against that method of measuring performance. All sorts of things could conspire to make me lucky or unlucky in the past; only my process is repeatable, not my particular past picks.
Strike two is that I cannot change the past. Regardless of whether I've already beaten the S&P 500, I can't do anything about it. I could change everything, but that's an even scarier thought. I've only got today. What does all my experience tell me is the best place to be for tomorrow (and all the years ahead)? It's becoming emotional--this mathematical test--and it's getting harder to quantify.
Strike three is that a high school student can put together a portfolio using Morningstar of the highest-star funds and beat my track record, even if I have beaten the S&P 500. If I choose an investment based on the ability to beat any other portfolio, I'm in no better position than I would be if I chose a high school student to run my portfolio.
Captain Sully is famous. The recent Tom Hanks movie made Captain Sully even more so and is a perfect example of how to make a difficult decision in stressful conditions. Sounds a little like stock investing.
Sully safely landed a passenger plane two minutes after take-off in the Hudson river. 155 people survived. Zero died. In the movie, he was investigated for making a poor decision. The math said he could make it back to either of two nearby airports. In fact, in computer simulations, other pilots turned the plane and landed successfully.
I won't ruin the movie's climax, but Sully is still a hero. In the real world, where people make real-life decisions, all of his experience helped guide them back to safety. Not dissimilar from the trust you put in your financial planner, the passengers were well-rewarded for trusting this experienced pilot. The best investment decision is not made based upon relative performance, it is made based on experience and trust.