Go with Flow: Why You Should Embrace the Market Instead of Fighting It

In August of 1975, China experienced a typhoon that would test the limits of its recently constructed dams along the Yellow River. On August 5th, roughly a half a meter of rain fell from the sky—surpassing the all-time record for the region by nearly 50%. Then, on August 6th, it started raining again…and continued for 16 hours. The following day, it rained again for 13 hours. Needless to say, the dams had reached their limits at this point. In the early hours of August 8, 1975, dozens of dams broke—unleashing a gigantic wall of water twenty feet high and 8 miles wide, traveling at a speed of 30 miles per hour. The people of the region didn’t stand a chance. Over 100,000 people would end up dying from the flood—making this incident the most catastrophic dam failure in human history.

Time and again, people tend to underestimate the destructive power of water. Although small in terms of the percentage of dams that are currently in operation, dam failure is a relatively common occurrence. According to the Association of State Dam Safety Officials, 173 dam failures occurred in the US between 2005 and 2013—just over 20 per year. While most are not nearly as destructive as the one mentioned above, many do involve serious damage to lives and property. Dams fail for a variety of reasons. Sometimes, it’s poor construction; sometimes poor maintenance. And then sometimes, like the above example, it’s the weather. And no matter how many precautions are taken, the weather can be rather unpredictable.

When it comes to investing, people often treat the market as if it’s a river they are trying to dam up. While it’s a nice idea to think that we can control the market and exploit it at our discretion, the reality is that it’s unpredictable. The moment we think we have it under control is the moment the dam bursts and we lose everything. So, if you can’t control the market, should you just stay out of it altogether? Of course not!

Investing, done properly, can be likened to raising many small aqueducts instead of a few large dams. Rather than completely halting the flow of the water, you simply want to softly nudge it to change direction. Of course, what we’re speaking of specifically are practices such as diversifying your portfolio. Don’t expect large returns right away. Instead, be patient and wait for the many small returns over time to accumulate into a healthy long-term return on your investment.

There are many pundits and consultants in the financial industry trying to sell you on the big score, trying to convince you that—if you just followed their advice—you could actually control the river. Don’t buy into the hype. You can’t control the river—you can only go with the flow. Storms will come but, if you’re patient and smart, you’ll come out on the other side with minimal damage. If you need help figuring out what it looks like to embrace the market instead of fighting it, feel free to reach out to us for a complimentary consultation. When it inevitably starts to rain, we would love to be there to help you be prepared for the flood.