Endurance

Exploring one of investing's meta games

I'm not a coward, I've just never been tested
I'd like to think that if I was I would pass
Look at the tested and think "There but for the grace go I"
Might be a coward, I'm afraid of what I might find out

- The Impression that I Get, The Mighty Mighty Bosstones

I recently gave a friend a copy of Endurance by Alfred Lansing. The book details the 1914 Arctic exploration of Ernest Shackleton, one of the most prolific explorers of the 20th century, and someone who risked his life and the life of others multiple times to explore parts of the world few would dare to, including Antarctica, an unknown continent at the time.

The book is incredible and I gave it to my friend, a fellow fund manager, as he was going through a rough time with work and short-term performance. I chose Endurance for many reasons, but most of all because it is the ultimate perspective giver. For those unfamiliar, in August 1914, Shackleton set sail for Antarctica, where he planned to cross the last uncharted continent on foot. In January 1915, after battling its way through a thousand miles of pack ice and only a day's sail short of its destination, his ship, the Endurance became stuck on an island of ice. After living on the stuck ship for some time, Shackleton and his men were forced to abandon the vessel once the pressure of the floes crushed the wooden ship between it’s massive ice blocks. The crew was then forced to live on just a handful of rations for 22 months before taking a near impossible journey through the Arctic Ocean in some of the South Atlantic's heaviest seas to the closest outpost of civilization, where they were marooned before being rescued four months later.

I describe Endurance the ultimate perspective giver because it has the power to take you out of your feelings and immediately transport you to the Arctic, where you realize very quickly that your problems could be much worse. The men in Shackleton’s expedition were plagued with much greater near term issues than we will ever face in our lifetimes, both as people and investors. Shackleton and his men came face to face with loneliness, hopelessness, potential starvation, frostbite, imminent death and much more. Yet they persevered through some of the toughest conditions known to man, without modern technology or equipment. You can’t read the book without being affected by it’s contents. Lansing does an amazing job of painting a bleak, cold, terrifying picture of the circumstances of the men. My overarching thought while reading the book was: “Thank God I’ll never have to go through something like that'.”

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It’s very easy to get down on ourselves as investors and portfolio managers when things are not going well. Stretches of underperformance open the door for feeling bad about ourselves, as if things will never bounce back. If you manage money professionally, you know this feeling all too well. The responsibility of managing other’s money is massive, and if you care about your results, when things are not going well it can feel like the weight of the world. In a worst case scenario, you forget to have some healthy form of detachment and begin taking the underperformance personally, as if you are the problem. Negative emotions can spiral from there.

My favorite part of Endurance is a poignant moment where, despite being stranded on the Antarctic ice, Shackleton's men exhibit remarkable cheerfulness and gratitude. This part of the book highlights the crew's remarkable adaptability and morale despite their dire circumstances.

On page 85, Lansing writes:​

"And yet they had adjusted with surprisingly little trouble to their new life, and most of them were quite sincerely happy. The adaptability of the human creature is such that they actually had to remind themselves on occasion of their desperate circumstances."

"In some ways they had come to know themselves better. In this lonely world of ice and emptiness, they had achieved at least a limited kind of contentment. They had been tested and found not wanting." ​

The crew’s attitude at the time represented an ability to find a sense of peace and self-understanding amid extreme adversity. Their contentment came not from comfort or even happiness but from inner strength and perseverance.

“They had been tested and found not wanting” speaks to moments of extreme pressure or adversity revealing strength of character, rather than breaking it. That theme appears across many domains: in literature, entrepreneurship, war memoirs, and philosophy.

True strength in entrepreneurship and investing is often shown in lonely, painful decisions — those testing points that reveal character. True strength also reveals itself in the painstaking process of raising capital, enduring rejection and trying to get partners to believe in your mission. If you manage money for others, and especially as a one-man shop, you’ve felt that loneliness and isolation before.

To be clear, I’m not comparing investing to heroic pursuits like war, exploration and others. This job is a lot of great things, but heroic is not one of them.

But rather, there are valuable lessons we can learn and feelings we can relate to when studying history, including those pursuits. One of the most interesting aspects of investing is finding seemingly unrelated things or disciplines that end up being connected to our work. Spending time thinking about the consequences of adverse circumstances of any kind can be helpful. I’m not the first person to think of this. Stoicism teaches that adversity is the training ground for virtue — you're not just enduring hardship, you’re being sculpted by it.

The arctic is described as a very cold place with brutal conditions. Often, all you can see around you for miles and miles is snow, making it very difficult to navigate. The book is called Endurance for a reason. It took an incredible amount of the trait, along with persistence, courage, optimism and hope that things would be ok and that the men would not die. There is much to be said for cultivating endurance and persistence in life and investing.

I absolutely love this profession. I love the industry, the volatility, the people, learning about businesses, but it can take a lot out of you. Markets are incredibly taxing, and if you operate as an active manager, investing money on behalf of others, you will feel every range of emotion you could ever imagine as you conduct your business. Saying nothing of the gratitude I feel to be able to do this job, this business can be lonely, isolating and unforgiving. I launched Greystone five years ago, and from then to now, we have invested through a set of macroeconomic events I could have never predicted at the start. I think this decade is intent on turning me into a seasoned bear market investor.

I’ve worked through the ups and downs, while trying to make good decisions, run a business, travel to meet companies, visit with potential partners, manage the current portfolio, exercise, eat healthy, have fun (bye bye social life) and be a husband and father to two small children. This job is hard enough in a vacuum, saying nothing about how it can weigh on your personal life. When performance is bad, or things are not going well, everything becomes more difficult. It’s not always fun to try and put on a happy face when you’re going through a nasty drawdown, or dealing with investment mistakes. This job and life requires an incredible amount of endurance. I don’t know where I’d be if I didn’t absolutely love it.

Apologies for turning this post into my personal journal. Woe is not me. I’m just pointing out that I’ve felt my fair share of excitement, anger, fear, frustration, anxiety, humility and plenty more during the past decade. Markets will bring all of this out of you. In fact, there have been many times when my negative emotions outweigh the positive ones, considerably. It can be really hard during those periods to stay level headed and make good decisions. Admittedly, I haven’t always reacted well. When things aren’t going well, a feeling arises where you just want to do something to stop the pain. Anything.

During 2022, during a particularly brutal stretch of underperformance for Greystone along with some investment mistakes on my part, I sent the following as part of a longer note to my partners. I was attempting to explain the mindset that was leading to sub-optimal decisions.

I wasn’t a lot of fun to be around during 2022. Things were not going well in the markets, I was not fun to be around, especially at home, and as a result, I’m sure my decision making suffered. I worked more during 2022 than in any year of my life and experienced the worst returns of my investment career. The investment business is one of decision making, and if I am not in the optimal frame of mind to make good decisions, we all suffer. Furthermore, when you are underperforming, calls stop coming in, new investor meetings dry up, and you’re left to contemplate nothing but how poorly you’re doing every day. Last year, it was very tough for me to let go of things or accept things I couldn’t control. My way of dealing with that was to work more, not less, which led to me wanting to try and ‘fix’ what was happening. Unfortunately, frustration towards things you can’t control leads to less than optimal everything. Including our returns.

Running a one-man investment firm doesn’t quite lend itself to taking chunks of time off, but I’ve taken some time since the end of 2022, and not only feel better, but have a much better understanding of when I need to stand up from my computer and take a walk. I finally feel excited to go to work every day, which matters a lot given my prior state of mind. Especially when it comes to mistakes, which are within my control to eliminate. As I said, you deserve better, and you will get it moving forward.

But things change with experience. Aside from COVID, where we quickly saw a dramatic recovery, 2022 was the first time while running my firm that I faced any sort of large drawdown. I didn’t handle it well, but as a result, I’m much better equipped to handle future bear markets.

Should they happen, I guarantee I will still want to stop the pain, from the standpoint of our portfolio. But I will more easily endure the difficulty on a personal level. One thing I’ve come to realize over five years is that facing market turmoil is kind of the entire point of this job, and I wouldn’t trade those feelings or experiences for anything. Remember, adversity is the training ground for virtue — you're not just enduring hardship, you’re being sculpted by it. In fact, if you’ve gone down this career path, you’re probably a glutton for punishment, but you may also realize that much of investing exists so that we can learn to better manage our emotions, bolster our self belief and deal with the ups and downs life throws our way. At times, it has little to do with the actual craft of picking stocks. It’s not the game of investing, its the game of life.

Life without adversity would be meaningless. I don’t care who you are or what you do. You can be an arctic explorer, or an investor, you will have your fair share of adversity. How you handle those periods may be the sole determinant of success. Most problems, issues or setbacks can be solved given enough time and resources. But again, how you handle periods of emotional uncertainty, ups and downs, and adversity is where the rubber meets the road in this business. The best investors have an almost sociopathic ability to detach from their results in order to handle those inevitable ups and downs without going crazy. Many of the best investors in the world experienced significant yearly drawdowns on their way to long-term outperformance. It’s not a matter of if, but when. Sure, do your best to avoid large drawdowns, but more importantly, know that when they come, you better have a rock solid process in place to cope.

Every investment professional is tasked with developing a process they can stick to through good or bad times. The process consists of what you invest in and how you’ve structured your environment for decision making. Without a strong process, belief system and endurance, most investors will crumble under the weight of expectations, underperformance, difficulty fundraising, personal problems and negative emotions. More important than a high IQ, good investors need the ability to think independently, inhuman levels of patience, and a system in place to manage and work through negative emotions.

This is what is the craft requires.

Life is not meant to be lived without pain, hardship, failure or adversity. Too much comfort can lead to a lack of meaning and a lack of purpose. Spend time studying some of the most successful people or entrepreneurs in the world, and you’ll realize that each of their paths was incredibly difficult, with plenty of hardship, pain, failure, rejection, setbacks and more. A few that come to mind are Arnold Schwarzenegger, Isadore Sharp, Leonard del Vecchio, Sam Zemurray, and of course Ernest Shackleton.

But as they will tell you, excellence is the capacity to take pain. There is not a soul on this earth that gets to live and build a meaningful life without some form of pain or adversity. It’s the price of admission to a meaningful life.

Why do you think Shackleton’s crew were able to step back and feel happiness or even gratitude about their predicament? Was it because they were comfortable? No. It was because they were doing something very difficult, but meaningful. That is how you create fulfillment in life.

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Michael Dell is worth $100 billion dollars. Phil Knight $30 billion. Henry Kravis $13 billion. If you don’t know who they are, look them up.

Each one of them has publicly stated that they would give anything to go back to the beginning and start from scratch. Think about that. They would voluntarily go back in time, to a point when they were not rich, and fight, claw, scratch and climb their way up the mountain again. So why are we complaining when things feel difficult or aren’t going well? That’s the part to be enjoyed! That’s the meaningful part. The part where you are tested and found not wanting.

Counterintuitively, your brain will try very hard to avoid enjoying difficult times. It will push and prod and release chemicals just to bring you back to comfort or smoothness. If you don’t listen, you will be better off. If you can feel gratitude during periods of adversity, instead of misery, you will be unstoppable. Because you then know every hardship is something to appreciate it, enjoy and even look forward to. The times when one really struggles are the times that build the necessary callouses to persevere and improve. We don’t realize we’ll miss those times when they’re gone.

I like to think that a little while after returning to safety, heat, comfortable beds and warm clothes, Shackleton and his crew longed for another adventure. I like to think they actually missed being out on that ice.

When they no longer had to endure.

Adam Wilk is the Founder and Portfolio Manager of Greystone Capital Management LLC, a small cap focused investment firm.

Adam can be reached at adam@greystonevalue.com