“We choose to go to the moon in this decade and do the other things, not because they are easy, but because they are hard, because that goal will serve to organize and measure the best of our energies and skills, because that challenge is one that we are willing to accept, one that we are unwilling to postpone, and one which we intend to win.” John F. Kennedy, September 12, 1962.
If you’re like me, you’ve spent more than a few evenings this summer watching the trove of documentaries that have been airing on PBS and other outlets about the Apollo program in celebration of the fiftieth anniversary of the first lunar landing on July 20, 1969. I find that watching the story of Project Apollo unfold and witnessing the genius, ingenuity, determination, and bravery of the men and women of NASA making the seemingly impossible become a reality to be both fascinating and inspiring.
Revisiting these events has also been an opportunity to see and hear the speech President Kennedy delivered on September 12, 1962 at Rice Stadium in Houston. The quote above, pulled from that speech, has long been one of my favorite presidential quotes. The speech was intended to rally support for the space program, but the rhetoric used to sell the audacious goal of landing astronauts on the moon and bringing them home safely seems to have a much broader application. Just because a task is hard doesn’t mean that it isn’t worth doing. Shirking difficult challenges and opting for the easy way out is not something that can be counted on to produce long-term success.
Our task at hand, managing investments, is certainly a much easier task, by many orders of magnitude, than the challenges faced by NASA and the Apollo program. While the NASA engineers had to solve problems related to the laws of physics and the nature of human biology, the most difficult challenges facing investors are often internal rather external. Being disciplined investors that make good decisions focused on cogent, long-term strategic plans is our ‘hard’ task at hand. The difficulty comes in battling cognitive biases, such as Recency Bias, Hindsight Bias, or Bandwagon Bias (also known as Herding), that are constantly pulling investors in the wrong direction. We are all subject to falling victim to these biases. They are constantly pushing us towards the seemingly easier path and are the most difficult challenges facing most investors.
Recent market performance is providing a plethora of cognitive bias challenges for investors. As has been the case for much of the last 10 years, the S&P 500 was the best performing market index in the second quarter, up 4.30%. This despite some significant intra-quarter volatility. That brought the S&P 500’s year-to-date performance up to 18.54%. This is where our cognitive biases kick in. Recency Bias will lead investors to extrapolate this performance into the future leading them to overweight large-cap US stocks. Hindsight Bias will whisper in the investor’s ear that everyone knew that the S&P 500 was the best place to be – it was obvious. And the Bandwagon Bias will urge investors to jump on board the US large-cap stock train; everyone else has and they are all doing better than you. This is the time that doing the hard thing, maintaining a disciplined long-term approach grounded in fundamental investment principals, becomes most difficult. And it is why investors should be prepared, as Lady Macbeth said, to “screw their courage to the sticking place,” and prepare to do that which is hard, not that which seems easy.