Aesop Didn't Whine (or doubling down to catch up)

Many years back I visited the San Diego zoo. A young boy was trailing his father, and intoned in a slow whine, "Daaaaddy, can I have some ice creeeeam?" In an even slower more nauseating drone, Daddy replied, "Stop whhiiiining."

Can we please put a little realism back into how we've fared in the stock market? There’s all this hand-wringing about how poor we are because of the dive in the stock market. Foundations, in particular, are cutting back on grants (at a time they should be increasing them) because "they've lost all their capital," while people lament the shrinking of their retirement funds.

There has been a paper loss in value over the last few years and I’m sorry about that, especially for those on the verge of retirement. But take a look at the following graphs, courtesy of the blog Observations. The graph below, the Dow Jones index since about 2000, is illustrative of the perspective we are choosing to take. Indeed, for for the last 10 years, the average rate of return was 1.3% (-1.0% stock appreciation, plus 2.3% dividends). In the last few years we lost all those thrilling returns of the earlier years.

But rule number one of investing is that there are ups and downs. In the short term, the market can be very volatile. Over the longer term, investment returns are relatively stable. If you’re getting richer faster than you think you should be, you’re probably right.


Let's take a longer look. Over the last twenty years, gains were exactly equal to the historical average (1900 through 2009) of 9.4%. A 25-year moving average shows a steady upward gain.


Because we take the short term view, we reach the wrong conclusions about what to do with our investments. Our public officials have convinced themselves that we must somehow make up for these "extraordinary losses". So what are they doing to make up for “lost” investment? Riskier investments!!! Fool me once…

Many states, including Wyoming, Wisconsin, Colorado and California are moving to higher risk investments in their pension funds. Here’s the logic: we owe more than we can pay out because we've assumed higher returns than we've earned (in part due to risky investments), so let's go after even riskier investments so we can assume even higher returns.

“Nobody wants to adjust the rate, because liabilities would explode,” Trent May, chief investment officer of Wyoming’s state pension fund was quoted as saying in this truly frightening story in the New York Times. “In effect, they’re going to Las Vegas,” said Frederick E. Rowe, a Dallas investor and the former chairman of the Texas Pension Review Board, which oversees public plans in that state. “Double up to catch up.”

Maybe Aesop understood that animals can be smarter than humans. In any case, it’s worth revisiting some of his wonderfully practical advice.

"It is thrifty to prepare today for the wants of tomorrow." --The Ant and the Grasshopper

"Beware lest you lose the substance by grasping at the shadow." --The Dog and the Shadow

"Slow and steady wins the race." --The Hare and the Tortoise

“It is easy to be brave from a distance." (or with someone else's money I might add)--The Wolf and the Kid