The Importance of Focusing on the Basics, as Both Pilots and Investors
A lot has changed since the first days of powered flight and the birth of the airlines. Aircraft have evolved as well. The newest generation of airliners, like the Airbus A350 and the Boeing 787, are remarkable in their technology, construction and range. As pilots, we adapt to a new aircraft by learning its systems and capabilities, but at the end of the day, it’s just an airplane. When you think about it, a new B-787 still displays what amounts to the “basic-T” many of us first encountered in a Cessna 172. Every airline teaches us that when things go wrong, turn off “the magic” and fly the airplane. This is just as true with investing as it is with airplanes – sometimes it’s necessary to ignore the glitz and magic and stick to the basics.
Back to Basics
Lately, it seems like the investing world has been inundated with new and glitzy products like cryptocurrency, SPACs and NFTs. We’ve also experienced crazy surges in the stock prices of some companies, driven by internet hype and amateur day traders. These things, along with billionaire-celebrity tweets endorsing specific companies, have gotten everyone’s attention and changed many investors’ behavior. You may even find yourself considering investing your hard-earned money into these “get-rich-quick” products. (I must admit, I briefly considered investing in cryptocurrency.)
However, if we look back over the last 100 years of stock market performance, it’s been illustrated time and time again that these “magic” investments rarely pan out. So why do these hot trends keep popping up, and what makes them so popular right now?
I believe that, similar to a blinking red light on the engine and crew alert systems, our attention is directed toward these investments by social media and financial TV shows. Just as in an aircraft, it’s time to silence the Master Warning and look for real solutions without all the noise.
Food for Thought
Arguably the world’s most successful investor, Warren Buffett made a bet in 2007 with a large hedge fund partner. The bet was $1 million that this hedge fund partner could not beat the performance of an S&P 500 index fund over 10 years. Buffett even let the fund manager pick the assets he would invest in (aka, the glitzy, magic stocks), and Buffett would merely pick a standard S&P 500 index fund. Any guesses who won the bet? Buffett’s index fund returned 7.1% per year, compared to the hedge fund’s 2.2% average over 10 years.1 That’s more than 3x greater than the expert with the glitzy stocks!
More recently, Creative Planning’s CEO, Peter Mallouk, made a similar bet with famous billionaire Mark Cuban. Mallouk bet Cuban (who is well known on social media for being pro cryptocurrency and other glitzy stocks) $1 million that over 10 years S&P index funds will generate better returns for investors than cryptocurrency. If history is any guide, we can make an educated guess about how this bet will end.
Impact on Pilots
What does this mean for pilots? As aviation professionals, we are fortunate to have excellent retirement plans in which to invest. In addition, our incomes often allow us to invest outside of our work-sponsored plans. Use history as your guide. Just as we are trained to turn off the noise and return to basic flying skills in an emergency, so should we be disciplined enough to ignore the glitzy, get-rich-quick stocks and other investment schemes that history indicates are likely to eventually come crashing down. In this way, we will all benefit from looking back to find our future.
Steven Lofgren is a captain on the Airbus A320 for a legacy airline and contributor to Creative Planning’s Aviation specialty practice.