Which Drawdown Are You Riding?
Imagine enduring a multi-year, even multi-decade drawdown in the name of “long-term”, in a venture you have zero real insight and/or power in.
I am told by everybody that the stock market, for instance, is about the long game. I read that it’s about “time in the market”. Compound interest is a wonder of the world they say.
Not surprisingly, I see people go “all in” on stocks and other financial assets with the belief that, in the long run, they will fair well, even if that means sustaining and holding through long periods of 30, 40, and 50 percent unrealized losses.
Now, I know life is not linear; we have turbulent seas to navigate, and a ride free of bumps not only doesn’t exist, but it can even diminish some of the fun of this character-building unpredictable existence.
But volatility, I’d rather ride in a venture I have real insight and/or power in. I’m all in on my little ventures because they are my own. On the integrated system. On people I am inspired by. These are my long games.
But I have no clue what’s really happening inside these publicly-traded companies. I’m not an insider. Yet I’m supposed to talk myself into tolerating blood baths of unrealized red with no end in sight because you know, “stocks go up in the long run”. Ask the Japanese indices how that played out, the ones that lost decades.
The Nikkei 225 hit 38,915 in December 1989. It did not reclaim that level until February 2024. Thirty-four years. An entire working life, gone, on Japan’s main equity market. The investor who bought at the top … was told the same things investors are told today about the long run and time in the market.
The Dow Jones first crossed 1,000 in early 1966. It did not decisively break above that level until late 1982. Sixteen years sideways in nominal terms. That stretch also contained the inflation of the 1970s, so in real terms the total return on the S&P 500 was close to zero for the entire period. Sixteen years of “investing” with nothing to show for it.
Then the most recent one. The S&P 500 peaked in March 2000 at the top of the dot-com bubble. It crashed. It made marginal new highs in 2007. It crashed again. It did not decisively reclaim the 2000 peak in nominal price terms until early 2013.
I don’t really fancy making predictions. And I’m definitely not in the game of expecting the expected.
The fabric of our reality is multi-dimensional and integrated, where cause and effect are not straight lines. If I’m going to ride a rollercoaster, it better be one that is deeply intertwined and aligned with my nature, because for this, I’m willing to carry the scars. This does not mean I am against the stock market; there is indeed a way to ride the waves of others without ending up a loser whose portfolio is halved.
The public market, I think, is one of the most refined extraction machines ever built. It is designed to make one part with their money, not because there’s a shadowy group pulling levers, but because the structure itself selects for it.
Every layer between the human and the actual value of a business is a layer that feeds on increased (blind or not) participation. The broker, the market maker, the fund manager, the analyst, the media cycle that whips sentiment back and forth so that volume stays high. Volume is the blood supply of the whole apparatus.
So the real question is whether my energy belongs in a system where I have no proximity to the actual value creation.
This is one of the many instances of the hyper-financialization of society, and it’s closely tied to the concept of the mortgage, which I’ve written about here. It is all connected, for the mortgage entices one to play this time-harvesting, opaque game, to compensate for the massive sums of money lost due to interest payments.
It’s a package deal that depends the premise that the wheels of these our institutions will keep spinning, that the system will hold. It may, it may not. But staking energy (+ time and money) on such impersonal leaps of faith … something just feels wrong about it.
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