One Big Investing Lesson I Learned Late in My Life

One of the most profound thoughts I’ve ever read on the child-parent relationship comes from the noted Lebanese-American artist and poet Kahlil Gibran, who wrote the following under the title “On Children” –

Your children are not your children.
They are the sons and daughters of Life’s longing for itself.
They come through you but not from you,
And though they are with you yet they belong not to you.

You may give them your love but not your thoughts,
For they have their own thoughts.
You may house their bodies but not their souls,
For their souls dwell in the house of tomorrow,
which you cannot visit, not even in your dreams.
You may strive to be like them,
but seek not to make them like you.
For life goes not backward nor tarries with yesterday.

You are the bows from which your children
as living arrows are sent forth.
The archer sees the mark upon the path of the infinite,
and He bends you with His might
that His arrows may go swift and far.
Let your bending in the archer’s hand be for gladness;
For even as He loves the arrow that flies,
so He loves also the bow that is stable.

The first time I read these thoughts, my first reaction was – “If my children are not my children, then whose are they? And what do you mean they are not mine?”

Being a parent in itself is a hard, bumpy process, and then when I was presented with the idea that my kids were not truly mine, and that I did not control them or their future in any ways, was not welcome.

These thoughts from Gibran shook up the obsessive involvement I had with my own children and also the thought that they would become what I as a parent want or guide them to become.

“You cannot control your child’s destiny,” said my elderly morning walk partner as I discussed Gibran’s thoughts with him, “but you can only choose to accept or reject their natural evolution. And if you remain in rejection mode, you would only harm yourself because as Gibran said you are just a bow that must be stable if your children – the arrows – must go away swift and far.”

Our Biggest Fear
Fear of losing control is one of the biggest and most widespread fears people have. The fear is that if you don’t manage to control the outcome of future events, something terrible will happen.

Keep parenthood aside for a moment, and consider the world of investing.

The crux of most of the biggest problems investors face is that they demand certainty in a world that is always tentative and uncertain.

They think they must accurately predict and manage the future, not just have some probabilistic and uncertain handle on it. And it is precisely this unrealistic demand that causes them to make dumb mistakes repeatedly.

Consider the formula of compounding, where –

Future Value = Present Value x (1 + Rate of Return) ^ Time
What excites most investors in this formula and where they wish to exert the maximum control and expect greatest certainty is the ‘rate of return’. This is despite that it is the only variable in this formula that is tentative and most uncertain, and beyond investors’ control.

The two variables that are under an investor’s maximum control are ‘present value’, or the initial investment and ‘time’, or the amount of time the money is allowed to compound. And these are the two variables, especially ‘time’, most investors choose to ignore in their race to earn the maximum return.

You Are Your Choices
Here is what Jeff Bezos of Amazon said in one of his best interviews I’ve read so far (emphasis mine)…

We do a lot of unusual things there. We don’t meet with our biggest investors. We meet with investors who have low portfolio turnover. Many investment funds have very high portfolio turnover. They’re not really investors – they’re traders. There’s nothing wrong with that: It’s just a different thing.

Where you are going to spend your time and your energy is one of the most important decisions you get to make in life. We all have a limited amount of time, and where you spend it and how you spend it is just an incredibly levered way to think about the world. If you’re going to spend time explaining the company, you should do it with people who are long-term investors, rather than traders. That’s our point of view.

Note that Bezos is talking about choosing what you wish to do with your limited time as one of the most important decisions you get to make in life.

Then, you must have heard about Warren Buffett’s 25-5 rule. If not, here is how James Clear described it in one of his posts…

Mike Flint was Buffett’s personal airplane pilot for 10 years. According to Flint, he was talking about his career priorities with Buffett when his boss asked the pilot to go through a 3-step exercise.

Here’s how it works…

STEP 1: Buffett started by asking Flint to write down his top 25 career goals. So, Flint took some time and wrote them down.

STEP 2: Then, Buffett asked Flint to review his list and circle his top 5 goals. Again, Flint took some time, made his way through the list, and eventually decided on his 5 most important goals.

STEP 3: At this point, Flint had two lists. The 5 items he had circled were List A and the 20 items he had not circled were List B.

Flint confirmed that he would start working on his top 5 goals right away. And that’s when Buffett asked him about the second list, “And what about the ones you didn’t circle?”

Flint replied, “Well, the top 5 are my primary focus, but the other 20 come in a close second. They are still important so I’ll work on those intermittently as I see fit. They are not as urgent, but I still plan to give them a dedicated effort.”

To which Buffett replied, “No. You’ve got it wrong, Mike. Everything you didn’t circle just became your Avoid-At-All-Cost list. No matter what, these things get no attention from you until you’ve succeeded with your top 5.”

Note that Buffett too was advising Flint to choose the most important things he wished to do in his limited time instead of focusing on everything.

Control Your Choices
My early investing life is a testimony to how I wished hard to control the uncontrollables, especially the return I thought I must earn from my stocks, and how I was humbled quite a few times. Thankfully, given my little investments, my mistakes did not hurt me big time.

In hindsight, I realize that each time I was humbled was because I had made a bad choice. Sometimes it was the choice of bad businesses, sometimes bad price, and sometimes giving in to bad advice.

Then, my job as an analyst – which made me think highly of my intelligence (how foolish was that!) – also created an illusion of control that whatever I would do would be right. Or that I had complete control over the outcome of my personal investments as also my stock recommendations.

It is painful for me to reflect on some of these grave mistakes I made in the past because I did not understand the difference between what I controlled (just my choices and process) and what I didn’t (the outcomes).

But I feel lucky to have made these mistakes early, and then constantly reading the likes of Buffett and Munger, and some Hindu and Stoic philosophy, that have helped me ingrain in my mind this basic difference on what I control vs what I don’t.

In Stoic philosophy, for instance, this is what I read of the Greek philosopher Epictetus…

The chief task in life is simply this: to identify and separate matters so that I can say clearly to myself which are externals not under my control, and which have to do with the choices I actually control. Where then do I look for good and evil? Not to uncontrollable externals, but within myself to the choices that are my own…

I would leave you with this beautiful little video from the 2008 movie Kung Fu Panda, where the wise old tortoise Master Oogway explains the illusion of control to its disciple Shifu, who is charged with training the unlikely Po, a giant panda, to become the next great kung fu Dragon Warrior.

The master says – “My friend, the panda will never fulfill his destiny, nor you yours until you let go of the illusion of control.”

If you can’t watch the video above, watch here.

Also, if you understand Hindi, here is a video from the epic Mahabharata, where Lord Krishna tells Arjuna how he has the right to perform his actions, but is not entitled to the fruits of the actions…and thus he must not let the fruit be the purpose of his actions (getting over the illusion of control over the results).

If you can’t watch the video above, watch here.

How often in our lives do we try to force an apple or an orange out of something whose essence is a peach?

You see, when it comes to investing, the stock ticker is not in your control, so there is no point looking at it or at your stock prices several times a day.

The returns you are going to make are also not in your control, even in the long run. And so are the 100-to-1 baggers that you wish to invest in when they are 1.

These are all beyond your control, and mostly appear in hindsight. So there is no point stressing about them.

But if you can focus on making clear and sticking to the parts of your investing that are within your control – your investment process, the kind of businesses you choose to invest in today, and your investment horizon – I am sure the returns will take care of themselves.

Plus, by making the distinction between what you control and what you don’t in your investing, you will remove all stress from the process and also have a distinct advantage over most other investor who fail to realize that they are fighting an unwinnable battle in their minds, with their actions, and with their hard-earned money.

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Also Read:

• Warren Buffett’s “2 List” Strategy
• When I Asked Jeff Bezos The Tough Questions