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Climbing the Wall of Worry

Climbing the Wall of Worry

May 08, 2023

Climbing – bouldering, specifically – is one of my favorite hobbies. I was first introduced to it in graduate school, and quickly became hooked. It offers both a great workout and a mental challenge, requiring physical strength and strategy. The structure is simple: you start at the bottom of the rock wall and climb to the top via an established route, constituted by a series of holds for your hands and feet. The easier routes typically consist of large, generous holds, while the more challenging routes contain holds that are small (“crimpy”) or smooth (“slopy”) and moves that test your strength, balance, flexibility, and endurance. As you progress, you become stronger and more strategic, developing an improved sense of how to maneuver up the wall efficiently.

Climbing also involves a lot of falling, resting, observing, and collaborating. The progress on a challenging route can be ploddingly slow, with plenty of falls as you piece the moves together sequence by sequence. Because climbing is physically demanding and engages muscles that you don’t otherwise use very much, you spend a good deal of time resting and recovering. There tends to be a communal aspect to the sport, with climbers trying routes (“projects”) together, watching and supporting each other, discussing certain moves and offering help or advice (known as sharing “beta”). All of which makes the sport fun and unique.

Long-term investing is a bit like climbing in these respects. In fact, “climbing the wall of worry” is a common phrase used to explain the stock market’s tendency to advance despite bad or worrisome news. Disappointing earnings, downbeat economic data, rising interest rates, geopolitical turmoil, political scandals, bank failures…the wall of worry can sometimes seem to stretch to insurmountable heights, yet the market continues its uneven climb upwards.

For a graphic illustration of this phenomenon, I’ve borrowed the following chart from my colleague Ross Mayfield, which highlights a few of the major shocks that the market has experienced over the last five years. The wall of worry – which includes a global pandemic and three bear markets – has been formidable, but remarkably, the market has averaged 10.3% during this 5-year span, consistent with its long-term historical average.

Today, there is still much to be concerned about. Persistent inflation is hurting consumers and delaying a reduction in interest rates. Declining deposits and high-profile bank failures have shaken the financial sector, which could result in a credit crunch for businesses and consumers. The risk of a recession remains elevated. Layoffs are causing pain in the tech sector. The political climate is polarized and acrimonious. The war in Ukraine is shaping up to be a protracted conflict, keeping diplomatic tensions high and wreaking disastrous losses on both sides. China is becoming increasingly hawkish in its stance towards Taiwan, escalating the possibility of a direct armed conflict with the United States and risking enormous economic fallout due to Taiwan’s dominance in the semiconductor industry. The list of worries is long and unsettling.

In the face of all this uncertainty, it is important to be mindful of the market’s resilience, and to remember that successful long-term investing is a never-ending climb up the wall of worry – not just external, big-picture obstacles like those enumerated in the last paragraph, but also the internal worries that occupy our individual minds and feelings. Like climbing, it involves a lot of falling, resting, observing, and collaborating.

Falling. Consider the 5-year chart above. Consistently and repeatedly, the market falls (often over relatively short spans of time). Think of your own experience. Your portfolio, and specific positions within your portfolio, has almost certainly lost value at various times over the last 5+ years. Falling isn’t fun, but it’s only fatal when you take extreme risks. In the context of a disciplined, diversified investment strategy, short-term volatility is simply the price you pay for long-term appreciation.

Resting. Long-term investors must be comfortable with inactivity, allowing their portfolios time to recover after a decline and foregoing the temptation to trade too actively. Attempts to day trade or time the market are seldom successful, and when they are, it’s typically short-lived and the result of dumb luck.

Observing. Investors ought to be observant of market conditions, of other, more skilled investors, and of their own financial situation. Whether an investment falls out of favor or a compelling opportunity arises, only the observant investor will recognize the shift and make a determination as to the best course of action. Observing, and learning from, the habits and tendencies of more skilled investors can lead to better decision-making. Additionally, investors ought to observe the position of their portfolio relative to their changing life circumstances and cash needs.

Collaborating. When I reflect on my progression as a climber, I am certain that it would have been much slower and more painstaking if not for the help of a few friends along the way. Similarly, when an investor can lean on and collaborate with trusted advisors, not only does investing become less intimidating, but the odds of achieving various financial goals can increase dramatically.

Climbing is challenging and effortful, but it is also rewarding. The same is true of long-term investing. As the market continues its climb up the wall of worry, and as you continue to climb towards your goals, remember: falls happen; rest is necessary and productive; observation leads to learning, which leads to better decision-making; and collaboration accelerates your progress and boosts the odds of success.

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