In 1914, at The Ohio State University (OSU), the "path architect" began the project by famously not beginning it.
Tasked with path building, he did not build a path.
Instead, he observed how students wanted to walk. And this what he found...
The dirt paths cometh.
Then he understood commuter preferences. And then he built the path.
Desire paths, as they're called, can stem from a blank canvas like at OSU, or can be deviations from what someone else was already guiding people to do.
Either way, desire paths give us useful information: they reflect what people actually want to do, either because no one else guided them (OSU), or because the guidance was overruled (the trail above) for a more preferable route.
Of course these paths can relate to non-physical journeys, like ours as investors. My concern during market downturns is that there are two common approaches:
The blank canvas / OSU Method: walk from A to B however feels right to you based on your calculations of getting to the place (e.g. campus building or financial outcome) you want.
Bucking the trail: Overruling system design because of personal preferences.
Desire, and paving desire paths (or not), is so challenging in an investment journey because most people will not have better outcomes by letting their opinions realize into results. Given a blank canvas to make investment decisions, they may identify where they want to go, but are ill-equipped to design a process with a high-probability of actually getting there.
The study of engineering portfolio outcomes relies heavily on stochasticism (randomness) and covariance (how assets in your portfolio are expected to move alongside the others), but most people will just "buy more Apple stock" or "sell Bitcoin" or "get out of the market because I don't like it right now." There is a science here despite that many investors choose to neglect it.
Bucking the trail system is a little more nuanced, mostly because I would challenge that the current system of financial trails is designed to help you anyway. Most financial services, the traditional path we observe, is intended to have you buy products that enrich the seller, not the investor.
My industry will harpoon you if you let them. The old trail is littered with disappointing investment journeys.
Do you see any current ads for companies amidst this downturn saying:
NOW IS THE TIME TO NOT BUY OUR PRODUCT!
WE DO NOT THINK WE CAN HELP YOU MANAGE VOLATILITY!
DON'T GIVE US YOUR MONEY!
Of course not. If you can't connect that product-sellers think more about Q1 revenue than your family's financial outcomes, you're missing the tarred heartbeat of Wall Street.
So not only are people frequently ill-equipped to make the journey without help, but the help many people get is often ill-equipped to help.
What's an investor to do?
As I wrote last week, downturns are a great time to assess the journey you're on. But even more so, how your desires (and preferences) are informing your path (and decision-making). Are you or your advisor taking actions that actually improve your expected outcomes, or you carving a path because it feels nice amidst a chaotic market?
The difference between a physical path and an investment journey is that investment journeys have randomness and unexpected events. At the moment, that particularly means we don't know what President Trump will do on any given day. I personally find it frustrating that he's relatively unpredictable, but I don't extrapolate that to assume that stocks need to go lower from here. The U.S. market being down 10%+ already tells me that prices have meaningfully adjusted for the current state.
Prices might go lower or they might go higher, and we can limit frustrations with our journey if we calibrate accordingly: expected the unexpected. We are likely to see large, daily moves both upward and downward, as we already have in the past few weeks.
Desire paths show the desired outcome and how it was accomplished. A critical thing you can do now is not mistake physical paths – which have no randomness – to investment journeys which do. If you make portfolio changes amidst periods of heightened volatility, it is common to have them work against you (sometimes only briefly, sometimes forever).
But investment decisions that cost us money cause us to want to make more decisions to course-correct, and constantly carving a new path to attempt to overcome past positions is a really frustrating way to invest. Often – investors that zig-and-zag frequently will end up with a drunken trade blotter that is best described as: bought high, sold low, lost money.
Campus quads and trails give us the opportunity to walk uninterrupted straight lines, but investment markets do not.
Whatever happens in the next few weeks, I can tell you that it's unpredictable.
And if you know that, you can avoid being surprised when you're surprised. And if that limits you wanting to start tinkering with portfolio actions that aren't likely to improve your expected outcomes, then indeed it is the most desirable path while navigating environments like this.
End.