Compounding with Manageable Volatility

How do you “win” your children’s bedtime with multiple kids?

Sometimes just surviving with your sanity intact feels like a victory.

How do you sensibly win big in the stock market?

Not by timing the perfect trade, but by compounding and staying in the game for decades. Basically, finding a way to keep your head, whatever the weather!

Those ideas may sound unrelated. But stick with me!

One Wednesday evening, during an exhausting week following the Iran War, I was running bedtime solo. Everyone’s routines were out of sync from the war and the start of summer, and I had no energy left to shepherd the kids through brushing teeth, pyjamas, story, and staying in bed. Michael McIntyre’s bedtime rants came to mind and gave me some solace that I was not alone.

In my despair, I tried something different: I whispered. I told the kids I’d only whisper for the rest of bedtime. They won a small concession when I agreed to read their bedtime story in a normal voice, but otherwise I didn’t fold. Only whispers.

Without the rising volume, they seemed calmer and I definitely felt calmer. It took longer, but the ride was smoother. I came downstairs with energy and a clear head.

For one night, I’d finally followed the best parenting advice I ever got:

“Your kids are Israeli, Middle Eastern, loud, boisterous, and not bothered by your shouting. Accept it.”

So what does this have to do with investing and with hedge funds that focus on low-correlation and low-volatility through obsessive risk management? 

Just like bedtime, easing off a little on the time you allow to reach your target can mean you arrive in better shape.

If a 40-year-old investor starts investing and makes 10% per annum but only manages to invest for 30 years, that’s 17.5×. But if they relax, target 7%, and are fortunate to live to 90, that’s 29.5×.

So, I finished bedtime calmer than I started. I believe, if you diversify and compound steadily, you’ll feel the markets have been calm waters that treated you well.

Does the idea of whispering at bedtime and turning the volume down on your portfolio resonate with you?