11 Nov 2021 There Are Two Kinds of Squirrels In This World…
When you have a puppy that requires long walks 2-3 times a day, you notice a lot of things about your neighborhood you otherwise wouldn’t. For starters, there are a lot of dogs in my neighborhood, and more people have heat pumps than I would have guessed. Also, the homes get quite dressed up for Halloween and last night I even saw a Christmas Tree through someone’s window!
In addition to meeting other dogs (and their owners), listening for heat pumps and admiring holiday decorations, I’ve become fascinated with the squirrels. A week or so ago, I saw one dig a hole, bury a nut, then reach to his right, grab a leaf, and use it to cover the acorn he just buried! (I told this story to my wife and she was equally amazed. Jack was nonplussed.)
Anyways, as I’ve been watching them, I’ve come to realize there are two kinds of squirrels in this world.
There are the squirrels with the adventurous spirit that sprint up the trunk of the tree as fast as they can, dashing to the highest branches in their search for the best acorns. They’re the acrobats of the group, and watching them is like witnessing a cross between the Swiss Family Robinson and Cirque Du Soleil. No sooner do they get to the top of the tree than out from the trunk they race. At first the branches are wide enough to hold them comfortably, but the further from the base they get, the narrower the branches become and the more they bow under their weight. Then, just as they get to the end of the branch that looks about to break, they leap!
For their efforts, they are rewarded with the first fruits of the tree, the choicest acorns, a meal fit for squirrel royalty.
Yet, while I admire them, I also think they’re kind of nuts. (You knew it was coming.)
Which brings me to the other kind of squirrel, my kind of squirrel. They sit calmly on the ground, watching, as I do, their friends expend their energy and risk their life for a meal that may be a little bit better than the one that inevitably falls to the ground a few feet from them because, in their frenzy, the squirrels up above are shaking many acorns free. Make it rain, these ground-bound squirrels think to themselves, make it rain!
From where Olly and I stand watching all this unfold, the squirrels in the high branches look to be having the time of their lives. But, I wonder what it’s really like? Is it fun for them, or is it a job? Is their frenetic pace caused by joy or by the fear of not having enough food for the winter? Do they have the kind of fun I imagine they’re having? Are they any more satisfied than their friends below?
The world of investing is similar. There are investors, both professional and novice, racing to the top in search of high returns and new investment ideas. And there are always new ideas: factor, value, growth, crypto, fundamental, technical, NFT, meme, cyclical, secular, direct indexing, active, passive. Some will reach their goal of outperformance, but the vast majority won’t. Going back to our squirrel analogy, these are the ones we see tumble from the branches praying for a soft landing spot.
Thankfully, there’s a better way, as the squirrels on the ground have realized: be still and let the bulk of the market returns fall to the ground around you. Let others risk their livelihoods and spend their energy, their efforts, and, life’s scarcest resource, their time, in search of extra returns that more often than not fail to materialize.
This doesn’t mean investing is easy. There will be times when you lose money, there will be barren trees and cold winters, there will be times when investing is uncomfortable. But the likelihood of abundance increases as investment activity decreases.
The squirrels in the high branches are the ones I will remember. They are the ones I’ll tell my friends about, and they’re the ones biomechanics researchers at UC Berkeley are studying. But, as an investor, it’s the squirrels on the ground I want to be like.
If the world of investing is making you feel a little squirrelly, we hope you’ll reach out to us.