Transition is Hard

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Jason’s Random Words

This is going to be a bit long.

I’m writing this from my dad’s living room in Georgia. Without getting into the details, he has a progressive disease that will eventually kill him, either directly, or more likely, because of its affects on his body over the past couple of decades that causes something important to break. It’s the sort of thing that you don’t really notice how much it has progressed until one day something happens and you realize how fragile and tenuous our lives really are. There really is a fine line between life and death.

A time of transition

My dad’s health has deteriorated in recent months, and while there are no indications that he’s at death’s door, he’s not going to get better. He’s agitated me and my siblings for some time about helping our parents sort through belongings and let them know what each of us may want, you know, after.

The reality is he’s probably ahead of the rest of us when it comes to visioning a future without him in it. He hit me pretty hard with this fact a few days ago, and I made the decision to get over myself and come down to spend some time with him and start the process.

This got me thinking about investing (yes, everything does, but also probably some defense mechanism happening to keep my mind from wandering to the after). The big thing it got me thinking about is how difficult transition can be. In the business world, one of the reasons why companies struggle with turnarounds is how hard change is. Humans just don’t do it well. It’s often the same thing with disruption and competition. It’s the same reason we can’t predict with accuracy: Our brains struggle to imagine and plan for things that look much different from the here and now.

It’s the same when it comes to investing. We often think about — and approach — investing as this monolithic activity where we just accumulate assets, watch those assets grow in value, and that’s it. Of course that does happen for some people occasionally. There are plenty of high earners who put significant sums to work over the past couple of decades who now have enough accumulated wealth that they don’t really need to worry about asset allocation or transitioning from volatile stocks to stable fixed income. Must be nice for those people. If you’re one of those, Jeff and I are always looking for sponsors!

That’s probably not your reality

Jesse Livermore is the most extreme example of the difference in the skills necessary to build wealth versus those it takes to maintain it. I first learned about Livermore in Once in Golconda, a book about Wall Street in the 1920s and 1930s that you need to read. It’s incredible how wild things were back then. Did you know it was perfectly legal for a company’s CEO to short shares of his own company for many years? Wild.

Back to Livermore. The short version is Livermore built — and then lost — immense wealth many times over before eventually losing everything one final time and committing suicide.

Again, extreme example.

The point is, when we are young and have the margin of safety that is many years of life ahead and future earnings to reinvest, we can take on more risks and just hold through market downturns that affect our wealth on paper but won’t impact us in the long term. The skills it takes to do this — investing more when everything seems risky; holding through downturns where you can watch in real time as your invested wealth shrinks by 25%, 50%, or even more, and risking owning some assets that won’t come back — aren’t the same skills it takes to preserve that wealth.

For most of us, we will get to a point where the assets we have accumulated are what we will have for the rest of our lives, and we can’t risk much of it.

This is the change that my dad’s declining health has me thinking about. And sure, like the Livermore example, it’s also a bit extreme. But we face these transitions in life on some scale pretty regularly. They’re periods of frustration and disappointment when the change doesn’t meet our expectations, like showing up at the restaurant you picked for dinner only to find that it’s closed. Permanently. More projecting about my dad? Maybe. Probably.

Making transition an opportunity, not a threat

Our brains see the world pretty linearly. When things are going great, we project a future that looks good. During dark times, we often see more of the bad, and prepare for it to continue. This behavior is rooted in our hindsight and recency biases, that lead us to ignore emergent threats and plan to fight the last battle again in the future.

Sometimes we just don’t want to face what’s coming, as much as we know it’s going to happen. In my father’s case, he’s in good health considering the underlying condition, but things could literally change overnight. So we just don’t know how long we have. I have a good friend who works for Spirit Airlines, which is going through bankruptcy. He’s had some of the same emotions about his job in recent weeks…

In my case, I’ve realized that this is an opportunity to do literally the thing we invest for: fund the life I want to live. Taking more time to come visit my dad while we have the time to spend together is a rare and special opportunity that I realize a lot of other people will never have. I won’t let worrying about the threat of my father’s eventual death steal that from me when I have the resources to do it.

Back to investing

While the emotions may feel different, the underlying factors behind it are the same when it’s time for us to make the transition from wealth accumulation to preservation. I think for many of us, accepting that we aren’t as young as we used to be, don’t have the time we used to have, and probably can’t be as resilient, is lurking back there in our hindbrains. That’s the fear. But there’s also greed. The past 15 years has been, like many of the past bull markets, exceptionally good for creating wealth. And the past two years have only seen it accelerate. Who would want to miss out on more of that?

But the reality for the vast majority of us is we don’t have the margin of safety of accumulated wealth. We have to start protecting what we have accumulated, or our financial future would be upended.

Remember earlier when we talked about how hard change is? It’s the ones we aren’t prepared for — not specifically, but with the resources to navigate — that hurt the worst. Remember what matters the most in life, and build your investing around doing more of what matters most to you. Don’t be afraid of transition. Let it be the opportunity to refocus on what matters.

And if you can, call your dad, too. If your dad’s not around, call your kid.

You can do it,

Jason

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