Birdwatching
A note about temperament and investing style
Last spring we came across a heron standing at the edge of a pond. It was completely still, not moving at all. A heron is a bird that looks like it was assembled from spare parts. It has too much neck, too much leg, and a beak that seems longer than necessary. This one stood with its neck curved into an S-shape and its beak pointed toward the water. It seemed every part of it had been arranged around a single thought. After a few minutes, the stillness started to seem strange. It wasn’t moving at all. No pacing, pecking, twitching, looking around. We stayed for maybe ten minutes watching it. When we left, I turned around for one last look and it was still in the same pose.
Later I learned that herons can do this for an hour or more. It’s difficult not to admire that kind of focus and commitment, although focus and commitment may not be the right words. The heron isn’t really practicing discipline about anything. It isn’t reading books about delayed gratification or listening to podcasts about patience. It’s just standing there because that’s how a heron catches a fish. It’s being itself. It naturally gets its food in an entirely different way from, say, a sparrow. Sparrows are all movement, always hopping and pecking. Even when they’re standing still, some part of them still looks like it’s vibrating.
The heron approach is probably the most celebrated investing style. Munger was probably the clearest version of it. Do nothing most of the time, and when the odds are actually in your favour, bet heavily. The problem is the financial media has always been fundamentally sparrow-like. Open any financial website and you see a stream of activity: tariffs, inflation, earnings, Fed meetings, forecasts, upgrades, downgrades, buy, sell, rotate, hedge, rebalance. There probably wouldn’t be much financial television if everyone behaved like herons. It would just be a broadcaster saying “We continue to wait” over and over and over again, then onto commercial break, and repeat that for 2-3 years.
I was listening to Paul Tudor Jones recently and he was explaining that he could never be a long-term investor. The drawdowns would be unbearable for him. Which I find genuinely funny because I cannot imagine anything more stressful than trading. It would ruin my mental health within a week. The idea of waking up every morning needing to make fresh decisions about markets seems unbearable to me, like a punishment from Greek myth. Somewhere in the underworld there is probably someone condemned to spend eternity watching futures markets and making decisions every fifteen minutes.
A few years ago I would have said that the trading approach is mistaken or flawed in some fundamental way and that long-term investing is the only way. But I no longer believe that. There’s no doubt that Paul Tudor Jones is successful at what he does. I think the right “way” for investors really comes down to temperament. You need to know what you are. Getting it wrong can be catastrophic. Being a sparrow who keeps trying to stand still at the edge of the pond, or (probably more common) a heron who reads too much financial news and feels compelled to always keep moving. Both are acting outside of their own nature. Maybe that’s where a lot of the difficulty and unforced errors come from. It might be okay in the short run, to pretend to be something you’re not, but eventually it catches up with you and you end up fighting yourself as much as the market.
“Temperament costs investors more than ignorance.”
— John Train