A couple of quick announcements before I begin today’s post.
1. My new book, Boundless, is now available for ordering: After a wonderful response during the pre-order phase, I finally have the book in my hands and am shipping it out quickly. If you’d like to get your copy, click here to order now. You can also enjoy lower prices on multiple-copy orders. Plus, I’m offering a special combo discount if you order Boundless along with my first book, The Sketchbook of Wisdom. Click here to order your set.
2. Relaunch of Value Investing Almanack: I have relaunched my premium newsletter, the Value Investing Almanack (VIA), which subscribers have called “…the best source in India on Value Investing, for both beginners and experts.” Click here to read more and subscribe to VIA at a special launch price (available only for the first 100 subscribers). Also, if you wish to check out the March 2025 VIA issue before deciding to rejoin, click here to download.
How to Survive the Wrong Turns in Life and the Markets
It’s been a few years, but I still remember that day with unusual clarity.
A phone call came in the morning. A cousin of mine had met with an accident. I assumed he was in the hospital, down with a few injuries. That’s how the mind protects itself, by assuming the best.
But the next statement in the call took my breath away.
He didn’t make it.
He was just in his thirties. Riding to work on a regular weekday morning. Same road and same routine. But that day he took a wrong turn. He wasn’t wearing a helmet. Maybe he thought he didn’t need to. It wasn’t a long ride. It never is, until it is.
India has the notoriety of having the highest number of road accidents in the world. In 2023 alone, more than 172,000 people lost their lives on Indian roads (in a total of 4.80 lakh road accidents), averaging 470 deaths each day or nearly one every three minutes. What’s glaring is that, out of these, 54,000 died due to not wearing helmets and 16,000 from not wearing seatbelts.
Now, despite these stats, I see more people riding without helmets, driving without seatbelts, and waiting to obey rules only when they see a traffic policeman. And this is not because they want to break the law, but because deep down, they expect to reach home safely. Most of us do. We assume the road will behave. That others will be careful. And that nothing bad will happen today.
But life doesn’t always agree with our expectations.
And this is not just about roads. It’s about how we move through the world and even how we invest our money.
We base most of our decisions on what we think should happen. We expect that if we work hard, we’ll be rewarded. If we invest wisely, we’ll be wealthy. If we play it right, we’ll be okay. But what if we’re not?
What if a job we rely on suddenly disappears? What if a well-researched stock crashes for reasons we couldn’t foresee? What if the life we’re building hits a curve we didn’t anticipate? It happens all the time, no?
Well, this is why we must prepare, and not for a perfect tomorrow, but for a range of tomorrows.
This is such an important lesson in investing. If you have been an investor for long, you know the feeling of carefully crafting your “investment masterplan,” and then watching the world upend it.
As the old Yiddish saying goes:
Man plans, and God laughs.
In other words, even our best-laid plans can go awry. Poet Robert Burns captured this enduring truth back in 1785:
The best-laid schemes of mice and men go oft awry, and leave us nothing but grief and pain, for promised joy.
In the stock market and in life, uncertainty is the only certainty. Nassim Taleb built an entire framework around the idea that we cannot reliably forecast rare, game-changing events (the “Black Swans”).
The defining characteristic of future change, Taleb argues, is that it is impossible and foolhardy to try to predict it. Instead, he suggests we must make peace with uncertainty, randomness and volatility.
His famous parable of the Thanksgiving turkey illustrates the peril of naive extrapolation that both riders without helmets and investors without a margin of safety indulge in: a turkey fed safely every day grows confident that life is benign…until, on the afternoon before Thanksgiving, something unexpected happens that forces a “revision of belief.”
Investors who assume the good times will roll on indefinitely can meet a similar fate to that turkey when a market crash or other shock suddenly hits.
Now the question is, if embracing uncertainty is so clearly important, why do many investors (and people in general) struggle with it?
The answer lies in our own psychology. We are notoriously poor at intuitively grasping ‘tail risks’, those low-probability, high-impact events. We have a tendency to either ignore these possibilities or underestimate them until it’s too late.
Behavioural studies suggest that we often either overestimate the probability of low-probability high-impact events or discount them entirely. So, while we panic at a one-in-a-million danger, we act as if rare disasters “won’t happen to me” at all. We’re lulled by long stretches of calm and fooled by the recent past. This normalcy bias can lead to a false sense of security, right up until we take a wrong turn where reality diverges violently from our expectations.
Part of the issue is emotional. Thinking about worst-case scenarios is uncomfortable, so we often avoid it. We prefer narratives where the world is more predictable than it really is, because that feeling of certainty is reassuring.
Psychologists have found that people even avoid information if it’s too upsetting or contradicts what they want to believe. It’s sobering to realise, but we often delude ourselves about risk to preserve peace of mind in the short term – at the cost of being blindsided later. Staying aware of this mental bias is key. It takes a conscious effort to remind ourselves: “Okay, what else could happen here? How might I be wrong?” The investors who lasted decades are usually those who constantly ask those questions. As the saying goes, they “plan for the worst even as they hope for the best.”
How to Stay Rich, and Alive
There are many ways to get rich, but staying rich requires a mindset of defense. It requires, as Morgan Housel writes, “some combination of frugality and paranoia.” Now, paranoia here doesn’t mean constant fear, but respecting uncertainty enough to always ensure you’ll live to fight another day.
Similarly, Howard Marks stresses the importance of simply avoiding ruin. Even if it means giving up some potential return, you never want to take a risk that could wipe you out because then the game is over. This is why he and Buffett both speak so highly of preparation over prediction.
It’s important to make peace with the fact that you won’t foresee every market move. Instead, you must structure your affairs so that when the unforeseen arrives, it is manageable – perhaps even an opportunity, not a catastrophe.
It’s also about having mental agility. Rigid plans will shatter, but flexible ones can bend and adapt. If you’re too fixated on one outcome (“the stock has to go up by next quarter” or “I’ll retire exactly at 60 with X crore”), you set yourself up for disappointment. But if you stay flexible and are ready to adjust your tactics or timelines as reality unfolds, you maintain control in an uncontrollable world.
Thriving in a World of Unknowns
Preparing for a wide range of outcomes comes down to a mindset. It’s about internalising a few paradoxes:
- That uncertainty is guaranteed,
- That the improbable is inevitable given enough time, and
- That the very act of planning requires acknowledging how little we can truly plan.
Once you accept those ideas, you start to see volatility and surprises not as failures, mistakes, or reasons to despair, but as normal parts of the process. After all, the goal is not to live in fear of everything that could go wrong, but to cultivate a calm confidence that whatever happens, you’re ready to respond.
None of this means you stop dreaming or aiming high or even riding a bike or driving a car. It just means your dreams and decisions aren’t brittle. You always have a Plan B because you understand the world’s complexity and everything that could happen.
To borrow a metaphor from engineering: think of yourself as designing a ship for a long voyage. You assume you’ll face storms, leaks, maybe a rogue wave or two. So you build the hull strong, you train the crew, and you carry lifeboats and life vests. You don’t know what will hit or when, but when it does, you won’t sink. And if the seas stay calm and your preparation wasn’t wasted, it simply lets you sail with peace of mind.
In the end, preparing for a wide range of outcomes in life and investing helps you live with great peace. It frees you from the impossible task of being right about the future all the time. Instead, you focus on what you can control, and let go of what you can’t.
A lesson I’ve learned from some of the greatest in the world is that wise people are not afraid of uncertainties. Instead, they know life can be a stormy sea, so they keep their boats ready.
I still think of my cousin sometimes when I see someone riding without a helmet. And I think of the version of me who once believed that certain things were too far-fetched to happen. The version of me who once fulfilled a long-held dream of buying a Royal Enfield motorcycle, only to sell it off three months later, after that phone call about my cousin’s accident. I just didn’t have the heart to ride it anymore.
Whether on a road or in the market, it’s not about being right every time. It’s about staying alive and staying ready, so that no matter what tomorrow brings, we still have the chance to keep going.
And maybe, someday, even to ride again. But this time, with a helmet on.
The Sketchbook of Wisdom: A Hand-Crafted Manual on the Pursuit of Wealth and Good Life.
This is a masterpiece.
– Morgan Housel, Author, The Psychology of Money
