I remember clearly the first time I flew on an aeroplane. It was October 1997 and the trip was from Johannesburg International to Louis Botha (Durban). The flight down was largely uneventful, but the return flight I remember quite vividly, and for a number of reasons.
The first reason I remember that flight is because I sat next to rugby legend, Naas Botha. There was an aisle separating us, and I recall how the manne sitting close by were hanging onto his every word. With the Currie Cup final looming, they were talking rugby the whole time, and from what I could gather there were no Sharks supporters in that conversation. As a die-hard Sharks fan I found the conversation quite amusing at times. (The Sharks were the reigning Currie Cup champions then).
The second, and probably the most important, reason I remembered that flight is because of the extreme turbulence we experienced for most of the flight. The captain instructed the airhostesses not to serve hot drinks as they were expecting some turbulence. A little later he instructed them not to serve food either. The turbulence was incredible, especially for me as a first time flyer. Naas and the boys stopped talking rugby about 10 minutes into the flight. I was to hear the phrase “jirre fok” for the first time in my life, repeated over the next 30 minutes. At one point I remember thinking to myself, if this plane crashes tonight the only thing people were going to be talking about was Naas Botha’s career. The other 200 anonymous passengers would simply make up the numbers in a national tragedy.
The third reason I remember that flight was because of one of my colleagues that was sitting in the row in front of me, about three people to the right. His name was Graham, and he was an old Englishman that had been living in South Africa for about 15 / 20 years. While everyone else I could see, including Naas, was looking distressed and visibly shaken by the persistent turbulence, Graham seemed largely unfazed. He read his magazine and occasionally looked forward down the aisle. His calm demeanour helped me a lot to deal with this frightening and unfamiliar situation.
About 10 minutes before touch down the turbulence subsided and the chirps started flowing. The manne seemed to find their voice again. When the plane touched down a large number of passengers clapped hands and cheered. I was a bit too rattled by the whole experience to join in, and I had one mission over the next 15 minutes; I had to talk to Graham to find out why he was so damn calm. I managed to get next to him in the walk to the luggage carousel. “Gray…how is it that you were so calm on that flight?” I asked. He laughed. “Were you scared you were going to die there young man?” he asked rather mockingly. “Damn right! But seriously, what is your secret?” I asked. I needed to get an answer if I was ever going to fly again after that flight. “Just look at the airhostesses – you only panic if they panic” he explained. Airhostesses can do a number of short haul flights in a day he explained. They know when it is just turbulence and when there is a real problem. “I look at them, and if they are calm then I am calm. If they look concerned, then I worry.”
I was a bit disappointed by his answer at first. I wasn’t expecting that. I spent most of the flight down looking at the airhostesses, but for other reasons. However, I would get to use Graham’s approach on a number of occasions. I was unfortunate enough to be on a flight where I saw real panic in the eyes of all the airhostesses around me. I remember adopting the brace position and saying to myself “jirre fok” – it was an Air France flight, there was a fire in the hydraulics somewhere and the pilots decided to abandon take off at the very last second. Very unpleasant.
So what does all this have to do with investing and growing your money?
A lot it would seem. The thing about investing to grow your capital or to create wealth is that you have to be prepared to take on the risk of capital loss. Growth assets such as shares, property and offshore assets come with volatility. Sometimes the volatility can last for an extended period, and result in low, no or negative returns over that period. This volatility can be likened to turbulence, which is an accepted feature of air travel. Empirical evidence has shown that many investors seem unable to cope with this volatility, often making poor decisions regarding their investment strategy. The famous Dalbar research has had the same finding for pretty much all of the last 20 years. They have found that investors have earned much lower returns than those delivered by the markets, largely due to their decision making in times of market volatility, more particularly in falling markets.
It is at times like these that investors need to be more like Graham than like the rugby manne. Graham understood that turbulence was part of the package when it comes to flying, but he also understood that he needed a coping mechanism to help him deal with it. His method was to look at the airhostesses in order to determine a suitable response, not to his fellow passengers. It was a simple technique but one that made a lot of sense. I remember landing in Johannesburg in the middle of a summer thunderstorm. The plane was all over the place and the turbulence quite unsettling. The poor lady next to me seemed close to having a heart attack. I looked at her and said “relax, I just look at the airhostesses. I panic when they panic!” It seemed to work for her as well.
One of the key roles of a financial adviser is to identify investor behaviours that could derail a well thought out investment strategy. We see the main part of our job after structuring a portfolio is to manage the client, and ensure optimal decision making as far as possible. It is especially difficult when you are dealing with forceful, alpha male type personalities. It is natural to doubt yourself and the strategy at those times as well. However, it is important to keep a calm demeanour and to focus on the facts.
It is at these times that clients are looking at us and deciding if they should panic or not. We need to look them square in the eyes and say “chicken or beef?”