What “Air” teaches us about risk and return
The new film “Air” showcases the story of Nike as a relatively new company started by Phil Knight out of the trunk of his car, who hires basketball whisperer Sonny Vaccaro to help take their sneaker business to a new level. Most people see it as a story about sports, Michael Jordan, or sneakers.
But there’s another angle.
Let’s take it for what it teaches us about risk and return.
When we see a feel-good movie like “Air”, what we fail to realize is that most stories like this don’t have a happy ending for those taking the risks – the entrepreneur, the salespeople, the athlete.
My sons often say I’m too negative when I point out – like I did when we went to see that film – that you don’t see the other side of stories like this because they’re not entertaining. Nobody wants to see someone take a big risk and lose.
I mention this because it’s facet of human psyche that surfaces again and again in investing. It is behavioral bias that leads us to believe that the favorable outcome will be the likely one, although there is just as much of a chance of a situation not working in our favor.
There are several different ways to grow wealthy.
- Hard work and discipline – executives, professionals
- Extraordinary risk taking – entrepreneurs
- Extraordinary physical talent/drive to succeed – athletes, artists
- Present at birth – born into generational wealth
- Unexpected life event – inheritance, lottery, legal settlement
There are a lot of “Air” movies out there, trying to motivate you to take extraordinary risk in the name of wealth. There’s no shortage of motivators out there trying to urge you to buy crypto, take a share in a particular real estate holding, or fund a unicorn private equity deal. The problem is that often the risks are not well understood and in that opaqueness is where behavioral bias festers.
As financial advisors, we help people grow wealthy by the “disciplined savings” method. And the key word here is discipline.
It takes a strong mindset to adhere to an investment discipline, especially when the market is volatile. Owning successful companies (as opposed to “playing” the stock market) for the long run is the most consistent way of growing wealthy in a slow and intentional manner. True that there are risks that come along with this, but they are transparent and well-understood.
This month marks the 40th anniversary of my providing financial planning and investment counsel to families I’ve been very fortunate to collaborate with. One of the key things I’ve learned in four decades is the most volatile element of investing – whether we’re experiencing highs or lows – is human nature, or behavioral bias. I recommend that you leave the “Air” stories for the movies, and stick to the old-fashioned way of wealth accumulation.
If we’ve said anything you wish to discuss, please reach out.
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