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Kids who grow up in farm country learn how to drive early.
When I was a teenager in the mid-1970s in the foothills of New York's Adirondack Mountains, I and all my friends drove tractors and bashed-up jalopies through the hayfields and on the dirt roads long before any of us had a learner's permit or a driver's license.
So, when it came time to take drivers' ed in high school, we thought we knew it all – until we met our teacher, a former U.S. Marine and retired New York State Trooper named Francis X. Terry.
Mr. Terry had steel-gray eyes, enormous hands and a crewcut that looked like something you would use to scrub the bottom of a Sherman tank. He taught drivers' ed the way a drill sergeant teaches push-ups – with precision, relentless discipline and a biting sense of humor.
To this day, more than 35 years after I last laid eyes on him, I can still picture Mr. Terry repeating his lessons to us. Almost every time I drive anywhere, one of his unmistakably worded proverbs comes back to me. Psychologists have shown that you will find messages intrinsically more persuasive when they rhyme or are otherwise easier to remember; Mr. Terry must have instinctively understood that.
Only recently did I realize that his messages apply at least as much to investing as they do to driving. Here are the pithy expressions Mr. Terry taught us about driving – and how I think they apply to investing as well.
When we backed up or parallel-parked, Mr. Terry would say, "Put your head on a swivel." He meant that you need to look to your left, to your right, in front of you and behind you when you back up. He explained that a deer, a dog or a kid on a tricycle could come out of nowhere: "One second there's nothing there. The next second you just hit something or somebody."
If any of us looked in the same direction for more than a second or two while we were backing up, Mr. Terry would bark, "Put your head on a swivel!" If you forgot, he would stomp so hard on the chicken brake that the car would slam to a halt.
I heard "Put your head on a swivel" so often at age 16 that I still hear it in my own head, at age 54, every time I back up my car.
The investing lesson: Risk is all around you, and the likeliest places to look for it are the places that appear to be the safest. That's where the next danger will come from – just where and when nobody is looking.
Whenever we pulled out of a driveway, parking lot or side road, Mr. Terry would say, "Edge on." He wanted us to change direction gradually, carving a slight angle rather than a sudden move off our previous course. Whenever we left the main road onto the shoulder or a fork, Mr. Terry would say, "Edge off," urging us to change direction as gently and steadily as possible.
The corollary to "Edge on, edge off" was Mr. Terry's most unforgettable apothegm of all: "STOP does not stand for 'Skid Tires on Pavement.'" Knowing that teenagers – especially boys – love nothing better than screeching to a halt at the last possible second and then squealing off after an infinitesimal rolling pause, Mr. Terry hammered home that you should slow down well before the stop sign, come to a complete stop and accelerate only gradually through the intersection.
I never look at a stop sign without a slight smile, and I've never done a rolling stop in my life.
The investing lesson: Making a sudden change in your plan is usually a mistake. Making a sudden, big change in your plan almost always is.
Every time an approaching car would even slightly vary its speed or direction – slowing down, speeding up, veering slightly toward the middle of the road – Mr. Terry would remind us, "Get in the ground-viewing habit." He trained us to look at the car's front tires.
The tip was especially useful when you were driving along a line of parked or idling cars; the first sign that any of them might pull out in front of you was a tire that suddenly turned sharply. If we saw the tires turn, we would know what the driver was about to do, regardless of whether he had the courtesy to use a turn signal.
Mr. Terry also told us an unforgettable story from his days as a state trooper. One sunny autumn day, a driver had parked his car without noticing that the front tire ended up buried to the hubcap in a freshly raked pile of leaves. Before the driver could walk into the store, the clerk stepped out and said, "You'd better go right back out to your car, sir." The clerk had seen what the driver had overlooked: a puff of smoke coming out of the pile of leaves under his tire.
By the time the driver got to the curb, the front tire burst into flames; by the time Mr. Terry arrived on the scene, the car was an inferno. I still glance down at my tires every time I get in or out of my car.
The investing lesson: It's what is beneath eye-level that matters. Look at base rates to determine what is most likely to happen, on average, under similar circumstances. When an initial public offering earns a hot return that tempts you to buy the next one, ask what the average performance of IPOs is (much lower than the average stock). When someone says that a rise in interest rates will crush the bond market, see what has happened in the past and ask what a 1% hike in rates would do. (At today's yields, it would knock about 5% off the price of a diversified bond fund.)
Nothing frustrates a teenage driver as much as having another driver speed past you with a honk and a cloud of dust. The urge to stand on the gas pedal and go barreling after the other car is almost overpowering. "Give him room and let him zoom," Mr. Terry would say. Then he would pause and say the same thing every time: "Mark my words. When we get to the next stoplight, he'll be right in front of us."
We would get to the next stoplight, and sure enough: There would be the red Camaro that had just passed us. Suddenly the guy who had seemed so cool looked like a fool.
The investing lesson: People who try to get rich quick don't end up any farther along – and take a lot more risk, and incur a lot more cost, to get there. You don't get bonus points in investing for arriving at your destination ahead of time. The only thing that matters is getting there in one piece.
I don't know where you are now, Mr. Terry. But thanks for making me a safe driver – and investor.
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