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WWII & Investing

Mark Orr
February 1, 2024

Markets have dropped recently.  The Dow Jones Industrial index lost more than a thousand points twice recently, setting a record.  Perhaps, the long awaited downturn in the stock market has finally arrived.  The last big market drop in 2008caught a lot more people by surprise.  Many experts predict that a 2018 market meltdown will leave fewer scars and may, in fact, be healthy. Investment success has more to do with our behaviour than it does with strategy.  We at Alder‐shot Financial Group talk a lot about keeping costs low and buying the entire stock market rather than searching for a needle in the haystack.  Sometimes these messages miss the point.  None of it matters if you can’t stick with your plan when the going gets tough. Which brings me to a story.  

Abraham Wald, was a Hungarian mathematician, chased out of Europe by the Nazis into the hands of the American military. Wald was tasked with developing a mathematical solution for a perplexing problem:  Airforce planes returning from bombing runs over Germany could only carry so much armour. Armour is expensive and heavy. A diagram of the average returning plane looked something like this:

The black shading on the plane to the right indicates where most of the bullet holes occurred.  Airforce experts were inclined to beef up armour in the wings and fuselage, where most of the bullet holes appeared.  Wald reasoned that it was not sufficient to study only returning planes but to also consider those planes that never returned.  Perceiving that planes could survive bullet holes to the wings and fuselage, he concluded that additional armour must be placed to protect other areas like the engines and cockpit.  Planes who took a hit in these areas did not make it home to be part of the Airforce study.  Wald understood that the right answer is not only less obvious but sometimes downright invisible.

Investment success can be similar. It is not so much what you see but what you don’t see. Yes, investing in low cost market portfolios makes sense.  What good is it if, you can’t stay invested because you have too much exposure to stocks or worse, you have no capital because you spend too much.  Behaviour is the unseen key to success.  As investors we go through well understood emotional stages as the market surges and swoons.  When markets are doing well as they have been since 2009, our excitement turns to thrill, causing some to abandon a balanced strategy in favour of the latest hot investment idea (see Bitcoin last month).  Conversely, anxiety about market declines can lead to panicked sell‐ing , abandoning a well thought out long term investment strategy.  Have a look at the chart above ‐ Tempted to misbehave with your investments?  Remember we can help talk you through the emotional rollercoaster of the markets and get you to your destination.

Final Thoughts

The biggest reason for underperformance by investors who do participate in the financial markets over time is psychology.  The two most identified  irrational investment behavior biases identified are:

Loss Aversion

The fear of loss leads to a withdrawal of capital at the worst possible Ɵme. Also knownas “panic selling.”


Following what everyone else is doing. Leads to “buy high/sell low.”

Mark Orr

Senior Financial Advisor
Aldershot Financial Group

Source: Lance Roberts. Real Investment Advice. Dalbar 2017: Investors Suck At Investing & Tips For Advisors

This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness. Before acting on any of the above please make sure to see me for individual financial advice based on your personal circumstances. The opinions expressed are those of the author and not necessarily those of Aligned Capital Partners Inc. Aligned Capital Partners Inc. is a member of the Canadian Investor Protection Fund and is registered with the Canadian Investment Regulatory Organization (“CIRO”). Mark Orr is registered to provide investment advice and transact in securities products in the provinces of British Columbia, Nova Scotia, Manitoba, the Yukon and Ontario.

"The stock market is designed to transfer money from the Active to the Patient."

Warren Buffett

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