Meaningful Returns

What I’m about to tell you may come across as braggy, and that’s because it is. But it’s one of my life’s greatest accomplishments so I don’t care:

I first dunked a basketball in 8th grade.

But it was one of the last days of 8th grade, and only my PE teacher was there to see it, and it was a frightfully weak dunk, and though I didn’t know it at the time, I was pretty much done growing.

This is a story about the role risk plays in the pursuit of better dunks, and other things.

Being an 8th grader who dunked once is very different from being a 9th grader who can dunk occasionally and is severely muscle-less. Time has a way of highlighting strange lines like this. I was 14 on both sides of the line; everything else was frightfully different. So at some point I decided I was going to become the guy who could dunk good dunks consistently, even if it was mainly in layup lines and practice.

I did all sorts of exercises, and I committed to them, and the short of it all is, somewhere in between my junior and senior year of high school I was jumping as high as I ever have, and that happened to be a pretty high height for a white kid from Carthage.

But there is one exercise that stands out to me from that period of my life in a way that none of the others do, and it was the series of four plyometric boxes set up in a row in the weight room of Union Pines High School. The idea was to jump over each of these boxes in succession–boom, boom, boom, boom–with each box being taller than the last. The fourth one was tall enough that not everyone could jump on top of it, and only two or three guys on the team could actually jump over it. And those guys were the guys that could jump the highest, of course.

But the thing about this last, tallest box was that it was risky. Risky in the way that you could mistime your jump, or not jump high enough, or not lift your feet high enough when you jumped, and any one of these slight errors could result in you getting tripped up and falling on a metal box and hurting yourself pretty good. But risk is always a two-sided affair. The box was also risky in the way that helped you jump higher, which was the point of it to begin with.

I hear and read a lot of people discuss investment risk in strangely abstract language, and on one hand I understand why this is the case. Numbers are very important and it’s good to attempt to quantify risk as objectively as possible. But on the other hand, this preoccupation with standard deviations and correlations is a distraction from the point of investment risk, which is to accept the reality that you will get hurt sometimes on the way to pursuing a better future. To always talk about the standard deviations of how much you might get hurt and never mention the pursuit of a better future seems strange and self-defeating.

If I hadn’t wanted so badly to be able to jump high enough to do cool dunks, taking the risk of that last plyometric box would have been pointless and even dangerous. But since I did want it so badly, the real risk would have been not attempting that last box, because I would be increasing the chance of not achieving the better dunks. Risk is always cutting both ways, which is why it’s such a tricky thing to navigate when it comes to our money. You have to start with the future and work backwards as best you can, always looking for the sweet spot where you can accept the hurt you will experience when the markets correct and fall precipitously because you judge that hurt to be less than the hurt of not achieving the future you have in mind.