As a kid, I was fascinated with aviation. (Okay, as a grown-ass adult, I’m STILL fascinated with aviation!!)
There’s something incredibly adventurous about taking flight, and I love the perspective of the world from a few thousand feet AGL.
A few years ago, I decided to get my private pilot license just for fun. I wanted to be able to hop in a plane whenever I wanted and experience the beauty of flight from the cockpit of a small plane. Here’s a picture of me in front of one of the Cessna 172 planes I trained in.
One of the things that I quickly realized is that you can’t just jump in a plane and start flying whenever you feel like it.
Even a basic flight involves a significant amount of planning, researching conditions, verifying that your plane is airworthy, and making sure that a myriad of details have been covered.
(If you want to really geek out, here’s a picture of some of the paperwork and planning for one of my most recent flights.)
A Historical Aviation Mystery
I’m thinking about flying today because my computer reminded me that today is National Amelia Earhart Day.
If you don’t know about Earhart, she was the first woman to fly solo across the Atlantic Ocean. She also set numerous other flying records and was one of my childhood heroes.
Earhart is believed to have died during her attempt to circumnavigate the globe. Her plane lost contact with the Coast Guard over the Pacific ocean and was never found.
And while the official story is that her plane crashed into the ocean, conspiracy theories opine that she may have survived for some time on a small island — or may have even orchestrated her own disappearance to escape the personal attention that she often shied away from.
As a kid, I loved the idea that maybe one day I would solve the mystery and find out what really happened on that fateful flight in 1937.
Two Parallels between Flying and Investing
Since today is Amelia Earhart day, I thought of two similarities between flying and investing. I’ve always been intrigued by how lessons in other areas of life can apply to decisions we make in markets.
The first thing that came to mind is the importance of planning.
Before every flight, a good pilot will:
- Plan a course (including altitude)
- Review details of all runways & airports
- Calculate fuel requirements
- Check for NOTAMs (notice to airmen)
- Review the plane’s weight and balance
- Check the weather conditions
- List appropriate radio frequencies
- Perform the pre-flight inspection
- Etc….
Taking off without paying close attention to ALL of the checklist items can result in tragedy.
(I once knew a pilot who took off without verifying his fuel levels. He had to make an emergency landing midway through his journey. Thankfully he was alright, but he lost his job and his license… oof!!!)
As an investor, you should have a similar checklist before you enter a new position. Yours may be different than mine, but should include things like:
- Why you’re getting into the position
- How much you are putting at risk
- What you expect to happen
- What you will do if it DOES happen
- What you will do if it DOESN’T happen
- How you will measure success
- When you expect to exit
Don’t ever just hop into the cockpit (or into a trade) without having a well thought out plan!
The second parallel involves balancing risk and reward.
Obviously Amelia Earhart was a risk taker. And many of us are risk takers in the market. That’s okay!! Presumably, Amelia died doing what she loved most, and that was a calculated decision that she chose to make.
I can respect that!
But in life — and in markets — we should always be aware of the risks we are taking. And there should be a reason for accepting risk.
For my investments, I prefer to have a significant portion of my capital in a safe, income-producing strategy that generates slow and steady profits. This is a low-risk approach and helps me feel comfortable with my investments.
At the same time, I use a smaller portion of my capital for more risky — or aggressive — trades that can have much bigger payoffs. This way, I still enjoy the “adventure” of finding great opportunities to make big returns. But I don’t risk so much that if things go the wrong way, I wind up in a dangerous position.
So what do you think??
Please comment below and let me know:
- Your process (or checklist) looks like for entering a new position.
- Or how you think about risk when it comes to the markets.
- Or maybe tell me about YOUR childhood hero and what you learned from him or her.
I always love hearing from you!
Here’s to growing and protecting your wealth!
Zach
P.S.
If you’d like to see the investments I’m making, you can follow along in real time!