Don't Chase the Market Needles

A few weeks ago I was doing my required annual flight training. At one point, while approaching the busy Denver airspace, my instructor suddenly turned off my main power switches, causing everything on my wonderful array of flight computers to go completely dark. My faithful turbine engine kept running but the only working instruments left were the battery powered backup attitude and altitude indicators and the whiskey compass mounted on my windshield. This compass is one of the old magnetic types that rotates in a liquid solution. I don’t know why it is called a whiskey compass but maybe it is because it bounces around like a drunken sailor. For someone who learned to fly in the days of computerized airplanes, those old compasses are challenging to follow.

I did my best to keep the plane on course, expecting at any moment that my instructor would flip the power back on and save me from a serious ATC course violation in busy airspace. However, he soon made it clear he intended for me to take the thing all the way in to a landing. I struggled to stay on course in the Denver turbulence as those old compass needles bobbed back and forth. It was then I remembered my training when I first learned to fly. “Don’t chase the needles” my instructor would say. So rather than trying to track those bobbing needles, I looked out the window to a distant landmark and held my course towards it. When ATC issued a new heading I would use the compass to adjust my course, then look out and find a new landmark to fly towards. In so doing I was able to bring the plane all the way in without any airspace violations.

Flying an airplane is not unlike retirement planning. They can both be complex. Both are designed to get us to a distant destination. And in both cases, our very lives depend on the decisions we make. If a pilot spends too much time looking at that whiskey compass, he will be constantly adjusting his course left and right trying to keep up with those needles, and getting worked up and exhausted in the process.

Likewise, an investor who gets caught up in day-to-day market activity will become exhausted and frustrated from constantly chasing those market needles. Investors always claim to be focused on the long term, but the truth comes out during periods of market turbulence. It is pretty easy during these times to identify those who are focused on distant, immovable landmarks, and those, who in short-sightedness are trying to chase the needles. The former are calm and in control while the latter seem always uneasy and often fearful.

If you find yourself getting a little worked up when present conditions aren’t exactly as planned, take it from a pilot who has flown many a plane, and many an investor, to a distant location. Lift your head and look out the window to an immovable landmark far from your current turbulence, and stay the course towards it.