Dealing with Setbacks
Usually you get this type of post after the market has corrected 10% or more. Not today.
Whenever the market crashes (or drops 5%), it feels like everyone comes out of the woodwork with their favorite Buffett quote about thinking long term. Now this may be what many people need to hear in order to not panic and sell, but these quotes have never really resonated with me. For the record, I have nothing against Warren Buffet and before some of you get mad, yes, I have read the letters (or at least some of them). My own personal issue is that I just have a hard time finding solace in quotes from someone who feels so removed from my circumstances.
In this post I’m going to go over how I, personally, work through setbacks. And believe me, I have lots of them. Not only will I go over how I handle setbacks in investing, but I’ll go over a couple of non-investing examples that are important to me.
Shit Happens
Whether it’s the Fed, poor business analysis, OPEC, bad luck, or some sort of unforeseen situation (like a pandemic), unfortunate circumstances happen and will happen again. Perhaps it’s financial in nature, an injury or you were not your best self to someone you really value, either way the reality is that you have a setback on your hands. Some of the setbacks are completely our fault, and some are not. Some are just the price of admission. If you want to be a stock picker and not have a significant drawdown, you are dreaming. Play this game long enough and you will get punched in the face.
My Experience
This is what I have noticed over the years as my own personal pattern or cycle when it comes to a setback. The first thing I do is bitch and moan about how things aren’t fair. Yes, this is literally what I do. I’ll get frustrated at the stock market and complain about how Trudeau is ruining things or how it’s unfair that I don’t have “good genetics” and can’t get stronger or how hard I work to be a father to my kids and nobody appreciates me. Not very mature, I know.
All the emotions come out, and I let them. I give myself permission to be human. I will do something like go for a walk, read, take a drive, nap, write a nasty message (but not send it), do some woodworking, build a Lego set, or I might message someone to complain about things. The key point to this is that, while I give myself permission to be human, I also make sure I limit the damage. I put up guard rails. This is usually a set time, such as an hour, a day or something else that is finite. When it comes to powerlifting, I may modify that workout if some nagging injury is bugging me. Or sometimes, I just sandbag the rest of the workout, but I rarely quit a workout that I started.
The funny thing is that the more I give myself permission to do these unproductive things, the less time I spend doing them. I have shown myself more grace as I get older.
Once that’s done, I have to get back up and try again. I don’t consider myself particularly talented in anything, but something I am good at (sometimes to a fault) is perseverance. Once you get the unproductive things out of the way, it’s time to pick up the pieces and try again.
It’s important to understand that this can look different for each situation. Below I provide some examples of setbacks and how I deal or had dealt with them in different areas of my life:
For investing, it’s checking my notes and my journal to see what I may have missed in my analysis. Then I take a look at the name again, with a fresh set of eyes, and ask myself if it’s still worth keeping in the portfolio. An example, here is a setback I dealt with for Redishred (KUT.v). When I purchased the business, I was under the impression that their EBITDA could grow even with stagnant or a modest decline in paper prices. What I didn’t factor in was the business (and stock) performance in an environment where paper prices essentially collapsed. I was comfortable committing 5-7% of my capital in the $3.5-3.75 range throughout 2021, which is a pretty standard size. By the time I figured out what the business looked like in the current environment, the share price was down 20-25% of my average purchase price. Additionally a couple years (yes years) had passed by this time but at this price (call it 3.10-3.50 in 2023), I felt like it was a decent bet and topped up my position. KUT was recently taken private at $5.00.
As with investing, I also make mistakes as a dad. There are times when I am too blunt or direct with my kids. There are times when I don’t validate their experiences. And there are times when I don’t show up as my best self. Once I get over myself, I work on repair with my kids, and believe me this is still a work in progress for me. This looks like me taking the time to admit I wasn’t my best self and explain why I was angry/frustrated/grumpy. I make sure it’s safe for them to voice their concern(s) and I do my best to make sure they feel heard. At the end of the day, whatever got me agitated is substantially less important to me than my attachment with my kids.
This last example is related to my identity as a lifter/athlete. I have been lifting weights in one form or another for over a decade. I did my first powerlifting meet in 2017. I have had many wins and losses in lifting. There have been injuries that are 100% my fault and others that were a freak accident. Regardless of the source, not being able to do something I enjoy is frustrating. When you are working around an injury, it feels like things are moving in slow motion and full recovery is a lifetime away. I have had to modify my training and set different goals in the meantime. Maybe it's to get stronger at a non-competition lift, maybe it's focusing on cardio or just muscle growth on a specific body part. I intentionally move the goal posts to keep the motivation up.
For all of the above, the worst thing I can do is quit. All of these are integral parts of me.
When there is no lesson
Ian Cassel mentioned this in this article.
Many of the losers I've had, there was nothing to learn. In fact, the real lesson was to forget and move on. To not let the losers change who I am, change my strategy, change my principles. To not let the losers slow me down and steal my courage to act on the next opportunity.
Sometimes you have setbacks and there really is nothing to take away from the experience. Stocks go down, some workouts suck, parenting isn’t easy, and so on. Spending time trying to force a lesson out of the randomness of life isn’t productive. So I just accept it and move on (or try my best to).
Closing Thoughts
Everyone deals with setbacks differently. I wanted to share that I am human, not a robot. I have found it helpful to give myself permission to have the initial illogical or immature response rather than trying to suppress it. I am human after all, and this is all part of the human experience. Doing so, gives space to the response without doing permanent damage. As I’ve done this, I spend less and less time dwelling and get back on the horse quicker.
How about you? How do you deal with setbacks?
Thanks for reading my work.
Dean