Why would we ever think volatility – a statistic that contains components of both risk and return – should only be associated with risk? Recently, more and more professionals have caught on to this issue (see "A 401k Fiduciary Dilemma: The Risk of Using Volatility to Define Risk," FiduciaryNews.com, May 28, 2014) The problem with using volatility to define risk takes me back to my teenage years and my war with literary interpretation. Those who grew up in the era of anti-war literature and movies might recognize the significance of the metaphor revealed in this story.
Like many nerdy science types, I spent my high school days rebelling against English class. I despised reading anything but pure science (a youthful fault long overcome). The hatred of any and all works of fiction rose to such a level that in 10th grade I convinced a dozen or so of my classmates to simply refuse to read a novel and write a report on it. The teacher countered with a refusal of his own – he refused to give us a passing grade unless we completed the assignment. At least that was his initial response. Upon reflection, he decided to give us a choice: Either we read a novel and write a report on it, or we write our own novel.
The onus of writing an opus overwhelmed my peers, and they chose to merely report on someone else's work. I, on the other hand, possessed (and continue to possess) a head of such rock-headed stubbornness that I considered my teacher's directive not the false choice it was intended to be, but a command to write my own novel.
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And so I did. It was called Armageddon. (Yes, the same name of a Bruce Willis movie, but my geo-political drama had nothing to do with asteroids crashing into the Earth. If I ever find the manuscript, I'll publish it.)
One of my other high school pet peeves was this unending (and rather inane) debate as to which was the better novel: Joseph Heller's Catch-22 or Kurt Vonnegut's Slaughterhouse Five. Both had recently been made into movies and both carried the same satirical anti-military flare popular during the Vietnam Era. It was considered more "hip" to side with Slaughterhouse Five in this dispute, so, naturally, having read neither book nor seen either movie, I championed Catch-22 as the better. I've since read both and my position hasn't changed, although I do admit I, like many others, prefer Vonnegut's style. But you have to read his entire canon to come to this conclusion. Slaughterhouse Five, considered by many to be his pinnacle work, cannot stand alone.
When I finally came around to reading Catch-22, of all the elements that struck me, none has stuck in my mind longer than the phrase "tight bombing patterns." First, the visualization of this thought comes across clearly. It's even easier to see if you ever watched actual footage from a World War Two movie that shows the bombardier's view of his ordnance exploding in a straight line through some unfortunate city-grid far below him.
That straight line is a "tight bombing pattern." In Catch-22, the dysfunctional generals preferred the perfect picture of a tight bombing pattern above all else. At one point, if memory serves correct, an award was given to the flight crew that managed the tightest bombing pattern. The celebration of this award ignored the fact the pilot ordered his payload dumped into the sea, long before this plane reached its target and long before the pilot would have to dodge and weave between the deadly flak fired from below. In the topsy-turvy world of Catch-22, it was the elegance of the picture that matter, not hitting the target.
So, too, is it with volatility. Displaying an all-too-familiar rock-headed stubbornness, for far too long, 401k investors, plan sponsors and their advisors have been consumed with reining in volatility. It makes me wonder if, like the generals of Catch-22, they've forgotten what the real target is.
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Christopher Carosa
Chris Carosa has been writing a weekly article and monthly column for BenefitsPRO online and BenefitsPRO Magazine since 2011 and is a nationally recognized award-winning writer, researcher and speaker. He’s written seven books, including From Cradle to Retire: The Child IRA; Hey! What’s My Number? – How to Increase the Odds You Will Retire in Comfort; A Pizza The Action: Everything I Ever Learned About Business I Learned By Working in a Pizza Stand at the Erie County Fair; and the widely acclaimed 401(k) Fiduciary Solutions. Carosa is also Chief Contributing Editor of the authoritative trade journal FiduciaryNews.com and publisher of the Mendon-Honeoye Falls-Lima Sentinel, a weekly community newspaper he founded in 1989. Currently serving as President of the National Society of Newspaper Columnists and with more than 1,000 articles published in various publications, he appears regularly in the national media. A “parallel” entrepreneur, he actively runs a handful of businesses, including a small boutique investment adviser, providing hands-on experience for his writing. A trained astrophysicist, he also holds an MBA and has been designated a Certified Trust and Financial Advisor. Share your thoughts and story ideas with him through Facebook (https://www.facebook.com/christophercarosa/)and Twitter (https://twitter.com/ChrisCarosa).
