Seize the Day. This may be a strange thing for someone in my profession to say, but life is the thing you miss out on while you sit home making plans. I know: Iron Capital, like most of our competitors, does comprehensive financial planning. Our longtime readers will know that I also despise that term. I refer to the process as making financial projections, because that is what it actually is.

Projections are far less certain than plans, and there is never anything certain about the future. Did anyone plan on this never-ending reaction to a pandemic, now on its third strain? One cannot even plan on tax policy any longer because of our winner-take-all mentality with politics. Lost are the days of compromise leading to longer-term stability and the idea that winners of elections get to incrementally nudge us in the direction they wish to go. What will our tax system look like when you retire? The truth is, we don’t know.

What are we to do? These times remind me of the old legend of the tribe who lived in a cave. Every day they faced the wall at the back of the cave, and they saw shadows that scared them into not leaving the cave. Every once in a while someone would get the courage to venture out, but they never returned. The tribe, being who they were, assumed the worst. The danger outside the cave was too great. So, the tribe stayed put.

Meanwhile, those who did venture out discovered a beautiful world. They found that it was the sun rising and glowing into the cave that caused the shadows, and the figures on the wall were the shadows of the tribe itself. The outside world with all of its beauty was in fact dangerous, and some who left did indeed die. Others attempted to go back and tell the tribe that it was beautiful outside, but the tribe did not listen; fear ruled over them, and they spent their days wasting away in the cave.

Yes, there was danger outside the cave. One of the great lessons of investing, which is a universal lesson of life, is that there is no return without risk. In weightlifting they say there is no gain without pain. In the Judeo-Christian tradition of Western Civilization, the Lord told Adam and Eve that he would have to till the earth, and that she would have pain in childbearing. If one prefers Eastern philosophy, the Buddha teaches that life is suffering. To avoid risk, pain, and suffering is to avoid living.

Last year one of my cousins gave me a book entitled, “The Book of Joy.” It is written by Douglas Abrams, who records a conversation between two good friends, the Dalai Lama and Archbishop Desmond Tutu. Discussing the hardship of apartheid in South Africa, the Dalai Lama said, “You can see this in an entire generation that has experienced great difficulties like you, Archbishop. When you got your freedom, you really felt joyous. Now the new generation, who are born after, they don’t know the true joy of freedom, and complain more.” He went on to explain that it is the suffering that makes one appreciate the joy. It is the natural instinct of a parent to save their children from pain and suffering, but when we do, we rob them of their ability to grow and learn from adversity.

One of Iron Capital’s three rules of prudent investing is to be risk-averse. Are we contradicting what I just said? No. There is a huge difference between being risk-averse and being risk avoidant. Our culture today has become very black and white. We talk unthinkingly about seeing “both sides” of any issue, as if there are only two points of view – the point of view from one extreme, or that of the opposite extreme. The truth is, there is a huge area in between where most of us actually live.

Risk-avoidance means never leaving the cave: sitting there, staring at the shadows on the wall, gripped with fear. The very opposite might be jumping out of a perfectly functioning airplane, or swimming with bull and tiger sharks while a guide is feeding them. Having the courage to leave the cave and venture out in the world does not have to mean jumping off of cliffs. One could simply go for a walk in the sunshine. There are a lot more than two points of view.

We have lost our sense of balance. Seizing the day does not mean being in denial or acting carelessly. Risk should be managed – neither avoided, nor carelessly taken. This is true in investing, and it is true in life. When I was in college, I took a course to get certified to scuba dive. Scuba diving is extremely simple: breathe out of your mouth, and swim under the water. The course, however, lasted an entire semester. The reason was, we needed to learn about all the risk involved. We learned everything that could go wrong, and what to do if that happened. Then, we practiced those skills over and over in the relative safety of a deep swimming pool, while being closely monitored by instructors. By the time we made our first open-water dive, we all had good knowledge of the risks involved and how to overcome them. We did not allow the risks to stop us, nor did we simply ignore them.

We must seize the day. Life is meant to be lived, not just survived… which brings us back to planning. Planning is a very useful function: it can provide direction in life, and we need that. Wandering aimlessly with no regard for the future is not a recipe for long-term success, yet neither is frantically planning out every detail and constantly dreaming of a future while not living in the now. Just like all forms of risk, there is a balance – living today while being mindful of tomorrow. The key is flexibility.

When we help our clients with their financial projections, we always discuss flexibility. The only certainty in projecting the future is that it will never be exactly like the projection. This does not make the projection a waste of time; on the contrary, this exercise can be extremely helpful. It gives direction, and a way to measure progress. If done correctly, it can help one achieve one’s goals even if those goals change, and having done this for nearly thirty years, I can almost assure you that they will.

The real key to success, financial or otherwise, is to create positive daily habits. In other words, seize the day for today, as it is the only day that we are ever guaranteed. There are some extraordinary people who simply do this, but they are the exception. Most of us require motivation. This is where goals come into play. Goals provide motivation: they drive us to do the things today that will lead to success tomorrow. If one’s retirement goal is to buy a house in Florida and live the good life on the beach, then the picture of doing that will help ingrain the daily habits of living within one’s means and prudently investing toward that goal of living in the “Sunshine State.”

When the day finally comes and she realizes that she actually loves her home, enjoys having four seasons and wants to see the grandkids, then that new goal is easily achieved because of the habits she formed. Goals are a good thing when they provide motivation to do the right things today. Goals can, however, be dangerous, as they can become simple daydreams. Dreaming of a house in Florida while watching the snow fall outside isn’t helpful. Dreams can have us once again staring at the wall in the back of the cave. We need to get out and live today if we truly want to have a successful tomorrow.

Once we have the motivation, we need a plan of action. The hardest step is the first step. This step is, of course, dependent on where one is starting. If he is just starting out in life, then the question is, how to save? How do I create a budget and start to invest for my future? For many of our clients the question is: Now, how do I take all of these financial assets and turn them into retirement income? Every step is like leaving the cave for the first time over again.

Financial publications are full of stories about those who hesitate to get started young; less discussed are those who hesitate to enter retirement. We have multiple clients who tell us every year that they are going to retire in three years…one has been retiring “in three years” for nearly a decade now.

Leaving the cave is hard. While the existence of simply staring at the wall is mind-numbingly oppressive, it is still more comfortable than turning around and taking that first step. It is helpful to know, however, that the step does not have to mean jumping off the cliff. Many of our clients are transitioning into retirement with consulting work, or by going part-time. There are more than two points of view; in fact, there are countless points of view, and there are countless ways to imagine retirement.

But what if we leave the cave and something bad happens? We deal with it, that is what. Life is not meant to be easy. We have never lived in a world without viruses. There has never been a time on this planet when the climate wasn’t changing. Adversity is a fact of life and part of nature. It does not mean that there is some force out to get you; it is how we choose to deal with adversity that matters.

We should remember the words of the Dalai Lama, who said, “Many people think of suffering as a problem; actually it is an opportunity destiny has given you. In spite of difficulties and suffering, you can remain firm and maintain your composure.”

When we make financial projections, we run computer simulations of thousands and thousands of bad things. We do not ignore them. We are like the instructors in my scuba diving class: we think of everything that can go wrong, and we prepare for it. Then, when it happens, we can remain firm and maintain our composure.

No financial planner ever projected that we would be living through two years in which the world has allowed itself to be held hostage by a virus; nor did they foresee the Federal Reserve ignoring their own 2 percent inflation target. If they had predicted such things, they almost certainly would have assumed this meant a selloff in equity markets, not two solid years of growth. One must remain flexible and deal with life as it comes, not as we wish it to be.

If lessons have been learned over this period, one can hope we now know that shutting down completely in the face of adversity is not a productive strategy. We cannot hide in a cave waiting for there to be no more shadows on the wall. Life is meant to be lived. We will face adversity, suffering, danger; but that just grows our appreciation for the beauty. We do not ignore risk or live in denial, but instead face it and manage it. We cannot hide in our caves; we need to seize the day, precisely because life is fragile and filled with adversity. It is a New Year, let’s make the most of it. Carpe Diem!

Warm regards,

Chuck Osborne, CFA
Managing Director