On January 15, 2009, US Airways 1549 departing LaGuardia airport hit a flock of geese, causing the extremely rare loss of both engines. What followed became known as the Miracle on the Hudson in which all 155 people on board miraculously survived, although the geese didn’t fare quite so well. The recent movie “Sully” has become a Christmas favorite because we all love miracles, especially at Christmastime.
Largely forgotten in the celebration of flight 1549 was the tragedy that happened less than one month later on February 12th when Colgan flight 3407 crashed into a New York house killing all 49 on board and one person in the house. While the US Airways pilots reacted perfectly to a terrible situation, the pilots of 3407, after noticing a dangerous accumulation of ice on the wings, proceeded to commit a series of errors that led to their tragic outcome. The 1549 pilots, Sully and Skiles, will forever be heroes for their courageous actions while the Colgan pilots, Renslow and Shaw, have become sadly immortalized in aviation flight training material as examples of what not to do.
An article by Sam Weigel in a flying magazine contrasted these two accidents, comparing the emergencies they faced and the pilot’s responses. He spoke of the highly acclaimed pilot training program of US Airways and the extensive and unique preparations of both Sully and Skiles. It compared this to the relative inexperience and poor training of the Colgan pilots as well as an atmosphere of cost cutting that existed at the now defunct Colgan airlines.
In conclusion, Mr. Weigel made a profound statement that applies far beyond these two accidents. He said, “US Airways 1549 was not a miracle. It was a return on a long term investment. Colgan 3407 was the natural result of when such investments are lacking.” In my lifetime of teaching financial principles, I have never come across a truer principle.
It has been said that miracles happen when preparation meets opportunity. The miracle on the Hudson only became a miracle because two pilots had paid the high price of preparation. Sadly, Colgan air could have been a miracle too, had the pilots made the proper investment to make it happen.
Many have told me it would take a miracle for them to ever save enough money to retire. I can tell you I have seen that miracle hundreds of times throughout my career as I have watched people of modest means invest years of discipline into making that miracle happen.
Christmas is a time of celebrating miracles but let us not forget the part we play in making those miracles possible in our own lives. Specifically to this column, if we prepare ourselves financially, then we open the door for financial miracles to occur. If, however, we are unprepared and choose instead to live on “hope” that things will turn out for us, then we will likely live our lives wondering why the miracles always seem to happen to someone else.
Every pilot establishes personal safety minimums. For each they will be different based on experience, airplane capabilities and individual comfort levels. Prior to embarking on any flight a pilot measures current conditions against those minimums and then makes a “go/no-go” decision.
Examples of items on the list will be weather conditions, status of the airplane and the pilot’s physical and emotional health. Each is left to decide their own minimums and adjust them from time to time as skill level or circumstances change.
The purpose of pre-established minimums is to move the flight decision away from the point of departure. By the time the pilot, with passengers, arrives at the airport, there is so much pressure to complete the trip that many might be tempted to take last minute undue risks. By having an established set of minimums to which they are committed, they can avoid the emotional disease we call “get-there-itis.”.
This week I planned a visit to the Bay area for some appointments that my office had painstakingly organized for me. As the time arrived for my departure the weather between here and there began to deteriorate. I became concerned about all the people who would be inconvenienced if I did not make the trip. Since acquiring our current airplane four years ago I had not had to cancel a trip, but on this day, while on my way out the door, I received my final briefing and the weather had fallen below my personal minimums. I am confident that I could have safely completed the trip, but I was committed to following my personal minimums which were created for my safety and that of my passengers. The trip would have to wait.
Difficult decisions are best made when our mind is clear and we have no pressures upon us. As the current investment markets continue to rise, we know that they can’t go up in a straight line, nor can they maintain increasingly higher levels if earnings don’t keep pace. Now would be a good time for investors to consider their own personal investing minimums. Set limits for how much market exposure you should take. Set standards for the conditions under which you would sell certain positions, whether it be to capture a gain or minimize a loss. Set personal minimums to protect your investments at a time when you can think and plan clearly, so you don’t find yourself making those decisions in times of pressure or high emotions. And then, most importantly, follow the rules you have set, no matter how tempted you may be to do otherwise.
All the best pilots understand that when the family is loaded in the plane on their way to Grandmas, is not the time for setting the standards of safe flight. Set those standards early, then commit yourself to following them. I was sorry to miss visiting my clients this week, but my hope is that by adhering to well thought out minimums, there will always be another day for that visit.
This week, for Launa’s birthday, some dear friends invited us to stay with them in Branson, Missouri. Launa loves music, and with more theater seats than New York City, I knew we would find plenty to enjoy. Though we expected wonderful performances, what we found inspired us in ways we had not imagined. In Branson we discovered not only talent and beauty but the very foundation of what has made America great.
Branson has many treasures but I was uniquely touched by the world class violin playing of Amy Dutton. From playful children’s tunes to the challenging works of the great masters, in a seemingly effortless fashion Amy exhibited the skill and beauty of one of the world’s finest musicians. As I enjoyed her music, I considered what lay behind the masterful performance. I wondered how many long hours, aching fingers, missed childhood activities, and perhaps even the occasional frustrated mother (there is certainly one behind every great musician) combined over many years to result in that special evening. Yet when it was over this phenomenal musician likely went to her dressing room still contemplating ways to do even better. Each performance, though flawless to the crowd, would certainly leave room for improvement to the one for whom perfection would always be the goal. In a world where mediocrity is increasingly rewarded with a participation trophy, it was inspiring to witness those still dedicated to achieving greatness.
It was not freedom alone, but our relentless pursuit of excellence that made the United States the greatest country in the world. Our future strength lies in returning that American Spirit, that thirst for greatness, not only to our boardrooms, but to our classrooms and even to our playgrounds. Merely being participants will get us nowhere.
In my career I often run into people who think they can become great investors by taking the casual approach. They read a couple of books, consult a few neighbors, listen to a radio show and then proceed to risk their entire life’s savings on their new wisdom. In so doing, they fail to understand the harsh reality that Wall Street never awards participation trophies. Like anything in life, greatness in investing requires more than skimming the surface. Those who are very good at it spend their entire lives in the pursuit of learning, while continually honing their skills. Like a great musician, no matter how good you have become, the work is never done, the learning never stops. To think you can do it any other way violates the very laws of nature, as if a would-be violinist might take the stage and perform Vivaldi after watching a few YouTube videos on the subject.
Amy Dutton, her family and so many other great Branson performers reminded me this week that greatness requires discipline and absolute dedication. We can take shortcuts if we choose, but such a course will leave us holding a worthless participation trophy, or, as it relates to investing, perhaps even worse.
Four years ago our family suffered our own 9/11 disaster when the Santa Clara dam burst and four feet of mud and water crashed through the back doors of our living room. Up until then most of us didn’t even know Santa Clara had a dam and its neglect was evidence city officials didn’t pay it much attention either. Built over 100 years ago to protect the lower farmlands from summer storms, the dam sat quietly for many years until on that fateful day it filled to near the top as floodwaters from Ivins flowed towards the river. Failing to do the job it was designed to do, the dam failed and, in a sad irony, created a bigger flood than had it never been built in the first place.
The rushing floodwaters, following the path of least resistance, weaved through neighborhoods, selecting certain houses for destruction, while others right next door were largely unaffected.
Our home was on a cul-de-sac with three other homes. In a few minutes there was nearly four feet of mud and water filling the main floor and burying the yard, yet two of our immediate neighbors were untouched. The water entered the home through the back door, then quickly retreated out the way it had come in and crossed a farmer’s field into the river. Had a pair of french doors in our family room held, the entire inside of the home may have been spared. As it was, it took over a year and $200,000 from our savings to repair the damage. The randomness of it all still baffles me.
I was thinking about the risks of random events as I reviewed market activity this week. On one particular day I noticed that though the market indexes were up, over half of all stocks were down. In fact, since the election, most people feel the stock markets have done very well, which they generally have, but the rally has been somewhat selective as many stocks are actually struggling. The old Wall Street saying that a rising market lifts all ships has not been very reliable this time around.
All this has been a reminder of another of many risks investors face with the sometimes randomness of the markets, perhaps especially when they chose to invest in individual stocks. Like the Santa Clara flood, a flood of market movement may strike one company while completely missing another. This unique time in the stock market may appear happy on its face, but your personal happiness will be dependent upon which investments you happen to own.
Each new administration brings its own opportunities and challenges for investors and even though many, including myself, are optimistic about having a pro-business president, investors can never assume that a rising market, if it continues, would be positive for everyone. Markets can be unpredictable and random, and rising markets may actually increase risk if investors become complacent. Remember that stock markets, like floods, can be very selective.
In front of our home is a large elevated planter. We have struggled for some time in our attempts to have a beautiful focal point but without creating too much ongoing maintenance.
Jaimee, one of our artistic daughters, recently created a landscape design that was both beautiful and low maintenance. She incorporated some large boulders, gravel rock beds, and a few easy to care for plants.
We took her design to a landscaper who offered to do the work for a few thousand dollars. We were then faced with one of those common decisions. Should we just do it ourselves and save some money, or pay someone else? Launa and I have always been pretty careful with money and we were both raised to love work, so we made the decision to do this on our own, with the help of some strong boys. After all, we own a vacant lot with some beautiful boulders on it and we have a pickup truck. How hard could it be?
Well, today we have a finished, low maintenance planter, just as Jaimee designed it, complete with some great boulders and beautiful plants. We couldn’t be happier with it. As for the work of shoveling two tons of gravel and moving several (much heavier than they looked) boulders, let’s just say the landscaper’s bid seems much more reasonable now.
A magazine article recently suggested that investors could save money by just purchasing a bucket of low cost index funds, thus eliminating any management fees. Such an approach reminded me of my planter. An index fund, to an investor, is basically a bucket of unmanaged positions. Similar to the raw materials required to assemble a proper planter box garden, a portfolio of index funds still needs someone to assemble and manage it. The investor will either need to pay someone to do that, or put in the time and effort to do it themselves.
Saving money can be a good idea, but only if we truly are saving money in the long run. I have often said, when it comes to investing, that the biggest cost most investors pay is the cost of mistakes. We have the option to mow our own lawns, make our own dinners, paint our own homes and even represent ourselves in a court of law, or we can hire professionals to do these things for us. Labor is never free but rather a choice between paying someone else or effectively paying ourselves to do the job.
To assume investing in products that don’t carry management fees is inherently better, is to forget that all investments need to be managed by someone. The real question is the same one I faced with my planter box. Do I want to do this myself, and am I qualified to do it, or is it better to pay a professional? The jury is still out on whether I made the correct decision with my planter. I will let you know after I visit another professional – Justin - my Chiropractor.
Hi, I'm Dan. I'm a CFP® Professional.
Securities and advisory services offered through Commonwealth Financial Network®.
Member www.finra.org / www.sipc.org , a Registered Investment Advisor. Wyson Financial, 1173 S. 250 W. Suite 505, St. George, UT 84770.
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