Everyone wants the upside of investing, but no one wants to pay the price of admission.
Everyone wants the upside of investing, but no one wants to pay the price of admission. Take a moment and think about the last time you watched your investments drop. How did you feel? What did you do? And be honest: how many times have you thought about selling everything while the market was crashing? If you have felt that urge, you are not alone. The best investors feel it too. The difference is that they learned to control their emotions instead of reacting to them.
When we think about risk, our minds jump to the famous crashes: 1929, 1987, 2000, 2008, 2020. Panic, fear, catastrophic losses. But here is the truth nobody puts in a headline: risk is always there, even in the good years. Especially in the good years. We are now a decade and a half past the 2009 low, and the S and P 500 has gained over a thousand percent. That sounds like an easy ride. It was not. Along the way came roughly thirty corrections of more than five percent. Ten of those exceeded ten percent. Four exceeded twenty. One dropped more than thirty. Every single one came wrapped in headlines screaming recession, predictions of the next great depression, and the feeling that this time the sky really was falling. And the market recovered every single time.
Why do stocks pay more than bonds, and bonds more than cash? Since 1928, stocks have returned roughly ten percent a year, bonds about five, cash about three, and after inflation stocks are the clear winner. The reason is not magic. Stocks pay more because they are riskier. You earn a premium for handling uncertainty, for stomaching losses, for staying in the game while other people leave it. That premium is the price of admission, and it is collected in exactly one currency: the feeling in your stomach during a drawdown. There is no version of the long-term return that skips the toll booth. Uncertainty is not a bug in the system. It is the feature that makes long-term investing work.
And the tolls arrive on a schedule you can roughly know in advance: a ten percent drop about every other year, a twenty percent drop about every four years, a fifty percent collapse roughly once in a generation. Look at 2008: by March 2009 the market was down nearly fifty-seven percent from its peak, and many investors sold in panic. Within five years it had doubled. The best gains follow the worst declines, which is precisely why the people who leave during the declines never collect them.
The research on this is brutal. Dalbar's analysis of investor behavior found that the average equity investor earns less than half the return of the index itself, not because they picked bad funds but because they timed their own fear: in after the rally, out after the crash. JP Morgan's numbers tell the same story from another angle: an investor who stayed fully invested over two decades earned nearly ten percent annually, and missing just the ten best days cut that to under six. Miss the ten best days in twenty years and you give up roughly half your outcome. And here is the cruel part: the best days cluster right next to the worst ones. If you are out of the market hiding from the storm, you are also out of the market for the recovery.
I watched this happen in real time. In 2020, with the market in freefall, an investor called me in panic: Ahmad, I cannot take it anymore, I have to sell. I tried to reason with him, but fear had taken over. He sold everything at the bottom, and by the time he felt safe again, the market had already recovered. His portfolio never caught up. Fear is expensive. It does not send an invoice, but it collects every time.
And there is a detail most people get wrong about risk tolerance: it is not about percentages, it is about real money. A fifty percent loss on ten thousand dollars hurts, and you recover. A fifty percent loss on the retirement account is life-changing. I learned this personally: early in my career I took a position I was sure I could handle, and then a steep drop put me in front of a screen full of red numbers, questioning everything. Most people think they can handle risk until it happens. So the playbook is three moves. Know your real tolerance, measured in dollars you can actually watch disappear temporarily without breaking. Expect the drawdowns on their historical schedule, so they arrive as appointments instead of ambushes. And stay invested, because as Warren Buffett put it, the stock market is a device for transferring money from the impatient to the patient.
This is what the runtime didn't get to teach, and I add it here as the extended class: the single cheapest piece of protection you can build is a letter, written today, addressed to yourself on the worst day of the next bear market. Because on that day you will not be the person reading this essay. You will be a scared version of yourself, flooded with cortisol, surrounded by headlines, and utterly convinced that this time is different. The calm you is the only person the scared you might listen to. So put it in writing.
The letter has four lines. First, the facts you believe today, written when no one is panicking: drops of twenty percent are scheduled events, recoveries have followed every decline in market history, and the best days cluster next to the worst ones. Second, the prediction: name what the headlines will say, because they will say recession, they will say this time is different, they will quote someone predicting a depression, and having predicted the noise in advance strips it of its authority. Third, the pre-committed action: exactly what you will do on the day the portfolio is down twenty percent, whether that is nothing, or rebalancing on schedule, or deploying a reserve you set aside for this purpose. Written in advance, while the king is on the throne instead of the manager. Fourth, the signature line: the sentence you most need to hear from yourself. Mine is simple: you have seen this before, and selling was wrong every time.
Seal it, date it, and put it where your future self will find it: next to your brokerage login is not a joke. All of this is illustration, not promise, and not personalized advice, but the mechanism is universal: you cannot control what the market does, and you can absolutely control what a calmer version of you already decided to do about it.
So here is the question in front of the mirror, and answer it in dollars, not percentages: if your portfolio dropped twenty percent tomorrow morning, what exactly would you do before noon? If you do not know the answer, the market will answer for you, and the market charges dearly for improvisation. The investors who win are not the ones who avoid risk. They are the ones who understand it, prepare for it, and stay in the game while fear empties the room.
If you want to keep this conversation going each week, there is The Sunday Memo. Because the premium goes to the patient, and patience is a structure you build before you need it.
Founder of Infinity⁹. Here I write in my own voice.
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