I want to share some valuable financial takeaways from an unlikely source – a fiction book. Typically, I read non-fiction; however, I started incorporating some fiction into my life. Firstly, I joined a book club and they typically pick fiction…until it’s my turn to pick and, of course, I’ll choose non-fiction.
Additionally, I went on vacation last week to ski in Utah (post coming up on how I hacked that trip) and took a fiction book with me. I thoroughly enjoyed reading it. Furthermore, some of my takeaways can be applied to our financial lives.
The Art of Racing in the Rain by Garth Stein
I borrowed this book from my Mom who borrowed it from my Aunt. It’s a book written from a dog’s perspective so I was intrigued. The dog, Enzo, was owned by a race car driver, Denny. Denny was particularly good at racing cars in the rain; hence, the name of the book.
As Denny’s life evolves, the reader gets to hear Enzo’s take on things and how he learns to adjust to this new life. His first love is always to Denny but he learns to love & protect the people that Denny loves also. Enzo’s motive is out of an undying commitment to his master.
The book is comical at times as the dog is quite smart and has a lot to say but with no voice to say it. So he learns ways in which to communicate the best he can.
Most notably Enzo detects something is wrong with Denny’s wife, Eve. He smells something rotting in her brain which is cancer but he has no way to tell them. As Eve experiences symptoms, you feel Enzo’s helplessness of knowing what’s wrong, but with no way to communicate it.
Dogs are Amazing
This is a little sidebar and has nothing to do with the racing/investing analogy but I had to include it. Dogs’ ability to sniff out cancer is not fiction and in my opinion, something the medical profession should be focusing on for affordable and early detection. I find this fascinating and if you are interested in this topic, I’ve found some articles addressing it:
- Meet the four-legged ‘bio-detectives’ who are pioneering a health revolution
- Cancer-Sniffing Dogs: Where are We Today?
- Can dogs detect cancer?
The story continues to follow the journey of Eve getting sicker and ultimately dying. Don’t worry I’m not spoiling the ending as this is revealed in the very first chapter. There are some injustices that occur later in the book that kept me up one night on vacation because I just had to know how the book ended. Fortunately, my fury was quelched by the final resolution of the book.
One of my favorite things about the book was when Denny talked about the finesse of successfully racing in the rain. It certainly seems like an art form and I believe a lot of the same characteristics can be applied to our finances.
Braking in the Rain is Similar to Investing in a Market Storm
As I learned from reading this book, when a race car driver is in the rain, they should use their brakes very gently. Denny uses the analogy of imaging there are eggshells on the brakes and that you don’t want to break them.
In a market storm or downturn, many people’s natural instinct is to put on the brakes. Some even pull their money out [gasp!]. However, the smarter thing to do is to treat those brakes ever so gently.
Applying brakes hard could cause devastating effects and a lost opportunity in racing in the rain and investing in a bear market. With the former, the race car driver could, at worst, crash and be seriously injured or die. At best, the race car driver could skid and lose a chance at winning the race.
With the latter, the investor could, at worst, lose a lot of money, pull it out, and miss out on future growth. At best, the investor could lose a lot of money, leave it in the market, but put the brakes on buying more stocks. This will result in a missed opportunity. After all, when the market goes down, stocks are on sale.
The Similar Characteristics of Race Car Drivers and Wise Investors
Apparently, balance, anticipation, and patience are characteristics of a fine race car driver. I would argue those characteristics are needed by any wise investor.
Racecar drivers need to know how to practice the balance of driving aggressively but applying caution. As investors, we need to understand the importance of balance by investing in aggressive companies as well as stable ones. I personally do this by choosing lost cost index funds which have a mix of many companies. That way if one company bellies up and goes bankrupt, it will be balanced out by the many other companies inside the index fund.
A good race car driver will be anticipating what the other drivers will do and preemptively adjusting.
Anticipation for an investor should have nothing to do with timing the market and/or anticipating what a particular stock will do. Rather, a wise investor will be able to anticipate what their particular risk tolerance may be.
Additionally, they should be able to anticipate future life events such as marriage, children, college, and retirement age. By anticipating such events, an investor can adjust asset allocations based on knowing whether they in the accumulation phase, preservation phase, or some mix of the two.
Aah, my favorite one! Perhaps because this is such a challenge for me in life in general. However, I love a challenge so I just cannot wait to get better at practicing patience. 😉
Race car drivers need to practice patience and not eagerly pass every driver. There is an appropriate timing of such things and it comes down to anticipating the other drivers every move. Furthermore, it requires patience, treating the race like a marathon, and seizing opportunities at the right time.
If you want to be a wise market investor, you’ll need to recognize you are in it for the long haul. My strategy involves:
- Automating my savings
- Investing in low-cost index funds
- Annually adjusting my asset allocation to maintain ~90% equities/10% bonds
- Becoming more conservative in my investments and employing a bucket strategy as I approach the wealth preservation phase
These things take time and patience and believe it or not investing is teaching me a lot about patience.
Lastly, the most Important Thing is to Never Give up
Those last few lines made staying up late to finish the book worth it. No one wants to read about a person who quits or settles when they did nothing wrong. We want to read about someone who fights for justice and never gives up because that’s what he promised his daughter.
And that’s the kind of person I want to be in life and with my finances. I found that kind of resolve when I wanted to stay sober more than anything. Additionally, it took the same kind of resolve when I paid off my debt. Lastly, I’ll keep investing and I’m not giving up until I reach financial independence.
I’m in it for the long haul. How about you?