What sailing can teach us about investing

“The pessimist complains about the wind; the optimist expects it to change; the realist adjusts the sails.” -William Arthur Ward

While I did not spend the summer at sea, I did enjoy multiple opportunities to go sailing on Lake Michigan. Heading out of the Milwaukee harbor with a favorable breeze and the sun overhead can lead to an exceedingly pleasant afternoon on the water, providing a welcome respite during a period of economic uncertainty and COVID-related disruptions. It is an environment tailor-made for full sail, full speed, and full enjoyment. On another occasion, a cold wind, overcast skies and large swells inside the harbor made for a rare summer evening that, in the words of our skipper, was “a good night to stay on land.”

Most often conditions were somewhere in between the extremes. We would go sailing and pay close attention to our environment. Making headway was possible but staying on course took some effort. As conditions changed, so did our tactics. Across open water there can be many paths to the same destination. If an obstacle was in our way, we would adjust to new heading – we did not argue with concrete.

The experience of sailing provides context and perspective as we consider the financial markets overall and the journey we take as investors. In a world of ample computing power, multiple scenario analysis, and the quantification of possible risks and potential returns, we can get a false sense of security believing that portfolios are like powerboats – set the heading, determine the speed and hold on until you arrive at your destination. The reality tends to be closer to a sailing expedition. Initial heading and expected speed can be (indeed, often are) altered by unforeseen circumstances, fortuitous tailwinds as well as storms that can blow us of course. Investors, like sailors, need to be mindful of the environment, taking risk when appropriate and trimming sails when warranted.