Family Investing as a Hero’s Journey: What Would Rocky Do?
Let me tell you something you already know. The world ain’t all sunshine and rainbows. It is a very mean and nasty place and it will beat you to your knees and keep you there permanently if you let it. You, me, or nobody is gonna hit as hard as life. But it ain’t how hard you hit; it’s about how hard you can get hit, and keep moving forward. How much you can take, and keep moving forward. That’s how winning is done. Now, if you know what you’re worth, then go out and get what you’re worth. But you gotta be willing to take the hit, and not pointing fingers saying you ain’t where you are because of him, or her, or anybody. Cowards do that and that ain’t you. You’re better than that. – Rocky Balboa. Had Rocky transitioned to investing after hanging up the gloves, his perspective on life would likely have served him well. To win as a family investor, you have certainly got to be tough – not “get punched in the face tough”, but mentally tough. When one of your investments lands a punch, you have got to shake it off - and resist the very natural urge to run! But there is more to it than this. Successful family investing is a journey that’s full of ups and downs - a path that is remarkably well described by the classic “Hero’s Journey” story structure upon which the story of Rocky Balboa was based (and Star Wars and Harry Potter and The Matrix, and, and, and…).The rest of this post considers the typical stages of the Hero’s Journey - as they relate to families adopting investment best practices of the most sophisticated institutions and family offices:
The Ordinary World & The Call of Adventure
The family investor (our hero!) begins with the status quo: traditional firms and traditional asset classes - ordinary, mundane, and too often, volatile and disappointing. Our hero decides they need more / that they must do better – so they begin to explore their options – there must be a better way...
Refusal of the Call, Meeting the Mentor & Crossing the First Threshold
… but the options uncovered are uncertain: there are certainly paths well-trodden by sophisticated institutional investors, but for our hero it would involve new people to trust, different approaches, new asset classes and investment strategies our hero has never heard of. Building a thoughtfully diversified and institutional quality portfolio feels daunting – and a little unsettling! Fortunately there is a mentor who helps our hero by providing experience, perspective, wisdom, alignment, training, the needed pushes - and confidence – which results in a commitment to the journey – and execution of the first few investments on this promising and exciting path.
Tests, Allies, Enemies
Our hero encounters many tests along the way. The new strategies sounded so intriguing – the due diligence reports so thoughtfully written – and the investment managers so confident and eloquent. But alas, some of them are underperforming so far. Has our hero made the wrong decision? Is this the right path? How much time is needed for this to work anyway? Wide diversification sounded like such a terrific idea – but some of this stuff just does not feel like it is working (the definition of diversification – more on this below). And the paperwork! And the capital calls! Despite the assurances and support of the mentor, our hero wonders if she would be better off back in the ordinary investment world…
Approach to the Inmost Cave & The Ordeal
The “Inmost Cave” is our hero’s own mind – her natural biases (both cognitive and emotional) that are causing real discomfort and skepticism. And the ordeal is whether to stick with it. “I’m now three years into this and the performance hasn’t been what I’d hoped. I’ve done a lot of work to get here and I’ve followed my mentor’s advice – though cannot help but wonder if I’ve made a mistake. My brother’s portfolio is soaring right now – I know it’s not nearly as well diversified as mine – and has a lot of technology stocks – but maybe I should be doing more of that…”
Reward & The Road Back
“Wait… some of the private investments we made three years ago are starting to return capital. A few of the real estate investments have refinanced and made meaningful distributions. And the private equity funds are starting to realize on their investments and return capital. This is starting to feel good! Maybe this will work…!”“But hold on - while many of the strategies I’ve invested in are doing well, a few of them have not done well this year. Shouldn’t we sell them? I know that we’re maxed out on our target allocation to equities, but the tech stocks are doing so well – shouldn’t we sell that credit strategy that’s been underperforming and buy some tech stocks?”
Resurrection & Return with the Elixir
And then it happens - equity markets are off 5% - then 10% - then 20% - they are now off 30%. “My brother is freaking! And I’m not... Yeah, it doesn’t feel great that my allocation to equities is off this much, but most of my less correlated strategies are holding up. And while I know that if my private investment managers had to sell their portfolios today, they’d be hurt – but they don’t. Those investments will continue to be harvested over time when it makes sense to do so, and perhaps even offer comforting cash-flows along the way. I’m starting to feel a calm settle over me – that all of this work, all of the seeds that I’ve planted have grown into a really solid and well thought out portfolio. I don’t have to worry about technology stocks – or whatever the next big thing is – or isn’t…”
“And yes, some of the strategies continue to underperform – though others outperform. And for the first time I really begin to understand what thoughtful and comprehensive diversification is all about – I own a wide range of different strategies that are managed by capable, thoughtful, and experienced people. And while my advisor and I expect them to work over time, none of them are likely to perform well all the time – and if they did, my portfolio would not actually be diversified. So, by definition, being truly diversified requires that I be constantly disappointed with pockets of the portfolio – though with the calming expectation that these pockets will take the oar when others have exhausted themselves.”
So the elixir is the peace of mind that comes with a thoughtful, comprehensive and well executed investment process – the calm and patience that settles in when you know you have done the work required to build and maintain the portfolio – and the wisdom to let go when you feel the urge to stray from your plan. Eventually you come to know that no matter how appealing all those stories of investment glory are, nobody knows what the future holds, nor what the next hot investment will be. So you stand firmly on the foundation of your well-defined investment plan, let the future throw at you what it will, and take comfort in the fact that even if your portfolio “ain’t all sunshine and rainbows”, it can get hit and keep moving forward. “That’s how winning is done”.
The Hero's Journey is a classic story structure that is shared by stories worldwide. Coined by academic Joseph Campbell in 1949, it refers to a wide-ranging category of tales in which a character ventures out to get what they need, faces conflict, and ultimately triumphs over adversity. From: https://blog.reedsy.com/heros-journey/