An Investing Lesson "From" the Birds

Milton Friedman was right: All analogies are bad analogies. Nevertheless, I am going to impart a timeless investment lesson with a story about birds and failure.

For the past two weeks, a pair of dark-eyed juncos have attempted to nest on my patio. At first they just poked around, inspecting every nook and cranny of my flower pots—house hunting, if you will.

They eventually settled on a campanula tucked into a corner, seemingly safe on the middle tier of a three-level stand, where they could hide under a little roof and behind the plant’s fronds. They built a nest, I gave them names, the lady laid some eggs, she didn’t freak when I came out to water, and all was good. For a week, she sat proudly in that nest, watching the world go by while keeping her little eggs warm. I was counting down the days till hatching and peeping.

But Monday evening, I came home to silence and emptiness. She was gone, and the egg count was down from three to one. The nesting attempt had failed, likely due to predation. There were no visible signs of trauma. No broken shells, no feathers, no nothing. But clearly a crow or squirrel had invaded, stolen two eggs and forced the birds to abandon the remaining one in its now unsafe location. It was sad, but so it goes. The natural world is a brutal place. Mostly, I felt bad for the bereft parents and wished they had left me a change-of-address card.

Silly me, it turns out! For on Tuesday morning, I heard movement and chirping on the patio. I looked out, and there they were! Back at it, hopping around and investigating the flower pots once again! Noticing they had a particular interest in my delphinium pot, I peeked in and saw they had already made a perfect round indentation in the soil, behind the main plant and below plenty of foliage. Undeterred by the tragedy, they were trying again and applying lessons learned from the failed attempt. The nest was half-finished by evening, and they were back to work at dawn Wednesday. Failure, it seems, was a motivator to improve—not to stop trying.

Weirdo that I am, I immediately contrasted this with a decision my grandpa made 20-plus years ago. When he retired in the mid-1990s, he became fascinated with the stock market. Every day, he would watch CNBC for hours, tracking stocks he owned and those he considered owning with a pencil and paper, watching their movements and looking for patterns and trading opportunities.

I know now this is a suboptimal approach, but his engineering mind loved it, and even though he picked legacy companies he was familiar with (think Industrials stalwarts, tobacco and well-known food and drug brands) over the dot-com startups, he did quite well for a few years, or so my grandma always bragged.^[i]

But like so many, he got caught in the 2000 – 2002 bear market. At some point near the low, he gave up and never went back to stocks. When I would ask why, he would mutter something about the market being rigged and “the little guy” not being able to make money anymore, making him better off in bonds and CDs. In my opinion, it was a tragic decision, one that seriously affected their options for late-life care in their last couple years on Earth.

I love my grandpa still, but he submitted to failure. He let it win. But these little birdies did the opposite: They picked themselves back up despite losing their home and their soon-to-be young, and they tried again. Failure? Not an obstacle. I have since learned that this is their very nature. Some birding outlets estimate 85% of nesting attempts fail due to predation, and juncos will make four or more attempts during mating season in order to make the odds work in their favor. This persistence in the face of failure is how the suburban population keeps growing despite the overwhelming failure rate.

We all fail, in life and investing. It happens. We make decisions that don’t work out. We act rashly, yielding to emotion rather than logic and what we know deep down to be true. We buy and sell at the wrong times, driven by greed and fear. We participate in bear markets and watch our portfolio value tumble. Even in good times, we will have some red downward arrows by certain holdings. Perfection is impossible, always. Things can and will go wrong, and often.

But when they do, the best long-term move isn’t to foist responsibility for it on external forces and take yourself out of the race, as my grandpa did. It is to look in the mirror, acknowledge it didn’t work out, find the mistake, own it, and then get back to business, applying the behavioral lessons learned in an effort to avoid making that particular mistake again. Learn where and why you were weak, and make that facet of yourself stronger. In other words, if you will pardon the analogy, think like a bird.

Another way to think about it? Stocks rise in 73.5% of all calendar years, which means they fall in a little more than a quarter of them.^[ii] That is a much lower failure rate than junco nesting attempts! If those feathered friends can keep going when they are successful only 15% of the time, that seems like excellent inspiration for investors to keep going after a bad stretch—knowing that stocks still rise the vast majority of the time, providing a whopping big payoff for patience and discipline.

None of this is easy, of course. Down markets are discouraging to most, and they can feel like they will never turn around. But the most rewarding things in life are always difficult. Climbing the mountain, winning the race and beating the odds are timeless, relatable metaphors for a reason. Maybe raising little birds won’t make that list. But if they can keep trying to nest again and again after losing everything, then surely all of us humans, with our basic reasoning skills, can find it in us to keep investing after the market’s occasional sucker punches.