July 15, 2024

We’ve all heard the saying "don't judge a book by its cover." Well, it turns out that's pretty solid advice for life in general – including investing. Often things aren't always what they seem.

Think about all the times you've been totally sure about something, only to have reality give you a wake-up call. Maybe you've written someone off based on first impressions, only to find out later you have a lot in common. Or perhaps you've been dreading an event that turned out to be a great time. Life has a way of being funny like that – always keeping us on our toes. Surprises such as these aren't always bad. Sometimes, they're actually quite good and can make life more interesting. Imagine how boring things would be if everything was exactly as it seemed all the time. We'd never have those "plot twist" moments that make for great stories later on.

Recently I was reminded of an example that really drives this point home. I was leaving a Detroit Tigers baseball game, and saw a guy dressed in shabby clothes playing a beat up set of drums. Not an uncommon sight in a city setting, where you may likely see many street performers trying to make a few bucks any given evening. I immediately thought of a story I had read a few years back.

In 2007, Joshua Bell, a world-renowned classical musician, conducted a social experiment. He stationed himself in a busy Washington D.C. metro station during rush hour and played some of the most intricate pieces ever written for violin – and not just any violin – he was playing a million-dollar Stradivarius.

Just a few days earlier, Bell had played to a sold-out theater where people paid top dollar to hear him perform. But there in the metro station, dressed down and looking like a stereotypical street musician, almost nobody gave him a second glance. Over nearly an hour, more than a thousand people rushed by. Only a handful stopped to listen for more than a minute. About 20 gave him some money, but most didn't even slow down. In the end, this virtuoso whose talents usually command hundreds of dollars per ticket earned about $30 for his impromptu concert.

This experiment perfectly illustrates how things aren't always what they seem. Here was one of the best musicians in the world, playing beautiful music on an incredibly valuable instrument – and most people treated him like background noise.

It makes you think how many similar things we miss out on every day because we're too busy, too distracted, or too quick to judge based on appearance. That person you walked past on the street could be a genius, an acclaimed author, or maybe just someone with an amazing story to tell. But in reality, we can't stop and thoroughly examine every single thing we come across in life. We would never get anything done if we did. Sometimes, those quick judgments we make based on appearances are necessary shortcuts that help us navigate the world.

The trick is finding a balance. We need to be open to the possibility that things might not be what they seem, without becoming paralyzed by indecision or suspicion. It's about cultivating a sense of curiosity and wonder for the things around us - simply being better observers.

Being aware that things aren't always what they seem can make us more empathetic, more open-minded, and more willing to see different sides of the same thing. It can lead to incredible discoveries and experiences we might otherwise miss out on.

This even applies to investing, as we are constantly remind-ed that things are not always what they appear to be, and that a second look is often the most prudent course of action. As a quick example, take the new market highs recently made. On the surface that seems great, and you might naturally assume that your investment account is also making new highs. But remember, your account is not necessarily the “market.” It may be up more or less, depending on the specific investments and your risk level.

When people say the “market” is up, they are often refer-ring to a specific index, such as the S&P 500. It is important to note, however, that the S&P 500 is an index of US large cap stocks only – not small caps, not international stocks and not bonds. Further, that index is dominated by a handful of mega cap growth firms, recently referred to as the “Magnificent Seven.”

While at first glance, the markets may be rising, looking deeper it may only be that a small segment of the market is benefiting. A less risky, more diversified portfolio could be lagging, but may very well still be on course to achieve its objectives. It all depends on how you look at it, and not just first impressions.

So next time you find yourself making a snap judgment, take a step back. Ask yourself if there might be more to the story. Life, like investing, is full of surprises, both big and small. They all serve to remind us that the world is a complex, multifaceted place, full of depth and nuance that aren’t always apparent at first glance. Being prepared for such occurrences, as much as one can anyway, will certainly make the ride smoother - whether it is your journey to retirement or a weekend road trip out of town.

The article above is an excerpt from the Q3 Quarterly Market Commentary. Here is a link to the most recent issue. Complete the form below if you would like to get this emailed to you each quarter.