Rabbits and Pigeons
I went on two walks the other day.
The first walk was in my neighborhood with the family. As we often do, we see a couple of these:
That’s a cottontail rabbit, we have a lot of them here in the Phoenix area.
The rabbit doesn’t know we’re friendly, so each time we get within 20 feet, it hops away.
…My kids are sad; they want to pet the bunny.
…I’m sad; I want my kids to be happy.
…The rabbit is sad; she was eating our neighbor’s grass, and we disrupted her breakfast.
So, everyone is sad.
On to the second walk…
Later that day, I went for a coffee fix at the Starbucks just down the street from my office.
(Here’s the one I go to in case you’d like to join me sometime.)
It’s a couple hundred yards from Harding Wealth to this Starbucks. On the way, I pass a bunch of pigeons on the sidewalk pecking at food scraps.
The pigeons are accustomed to people walking around, they only move when I get within a foot or so.
…I’m happy I don’t have to walk into the street to get around the pigeons; they slowly move out of my way.
…The pigeons are happy; they get to keep eating scraps.
So the pigeon is better off than the rabbit — but why?
Well, for one, the pigeon knows something about me that the rabbit does not: the pigeon knows Adam (and most humans) are not a threat.
The pigeon gets its food from urban sources, which regularly exposes it to humans and causes it to learn our habits. The pigeon sees that we’re not only not dangerous, but, in fact, we’re actually a critical part of its survival (as I accidentally let a crumb from my croissant fall on the ground to be eaten).
The pigeon is used to the chaos of the world and the presence of people.
The rabbit could learn a lot from the pigeon.
In fact, investors can learn a lot from the pigeon too.
What can investors learn from a pigeon?
Investors, like pigeons, need to eat. Not only do they need to eat today, but also in the future.
As we’re all learning in 2022, the food we eat in the future may be impacted by inflation. See the chart below showing levels of CPI we haven’t seen since the early 80s.
So, when dealing with inflation — (or, in “pigeon terms” our ability to eat), we may similarly benefit from getting comfortable being near chaos.
And by “chaos” I mean investments with volatility.
Here is how stocks (a volatile investment) have faired relative to inflation over the last 30 years.
Past performance is no guarantee of future results. Short-term performance results should be considered in connection with longer-term performance results. Investing risks include loss of principal and fluctuating value. There is no guarantee an investment strategy will be successful. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio.
If the year ended today, the above chart would likely show a red dot between the 5 and the 10, with a green bar down somewhere between negative 15 and 20 — so pretty bad. However, the ability for stocks to have handily beaten inflation in prior years (like 2010, 2012, 2013, 2014, etc.) would have given a hypothetical investor plenty of cushion to underperform in 2022.
Sometimes you have to adopt a long term strategy to help insulate against short term shocks like inflation. Sometimes you have to get comfortable with risk to get what you want. Like the presence of humans to the pigeon, stocks may not only be not dangerous, to investors, but, in fact, may be a critical part of their survival.
Of course, the strategy you adopt should be the result of your plan and what you’re looking to accomplish — not the musings of a guy talking about the random animals he saw the other day, but I’m sure you understand what I’m getting at.
That’s all for today.
Until my next allegory,
Adam Harding | CFP | Smartvestor Pro | Aesop’s Disciple
480-205-1743
www.hardingwealth.com
(As always, feel free to send me an email asking how to be more pigeon-like).
For informational purposes only, not investment advice. Do not touch wild pigeons or rabbits for risk of disease (I think).
