Beware of the Zimwi
This morning, Saturday, my kids were watching ‘The Lion Guard’. In this particular episode the animals are afraid of a fictitious animal called a Zimwi. The Zimwi is known to be a monster with eight legs, each bigger than the last, teeth as sharp as a crocodile’s, big spikes and it is as tall as two giraffes.
The zebras are going wild running around in circles shouting ‘panic and run’, ‘panic and run’. Kion, the lion cub, and head of the lion guard (whose job it is to keep The Pride Lands safe) at one point tells his mates that it’s ok to be scared but that it’s not ok to run.
Eventually, they discover the Zimwi. It turns out to be two porcupines, on top of a termite mound, in the dark.
Yesterday, Friday, I gave a talk to the Cayman Islands Directors Association which I titled ‘Rethinking risk, perceptions and biases’. It challenged a lot of conventional wisdom and for some people might have turned everything they thought they knew upside down.
I talked about how our physiology, psychology and culture all work against us when it comes to investing. We all know that good investing is about buying low and selling high, but so many things conspire against us and make us want to do the complete opposite. Our brains are primed to react to volatility which is why so many people fail at investing.
Watching the Lion Guard really made me chuckle because right there I realised that volatility is the Zimwi.
Volatility can be whatever we make it to be. Just like the animals built this creature up in their minds into something enormous and scary, so can we with volatility. We can react to it, or we can ignore it. Like with everything in life, it’s about how we choose to react that matters.
The zebras chose to panic and run, whilst Kion, the lion cub, chose to face it head on. Only by doing that did he discover that it was two little porcupines.
When we look back at today, just like every other market fall before it, we will realise that there was never any Zimwi. It was just a porcupine. Let’s make sure we don’t act like a zebra.