But when the observers left the path and stared at the squirrels, squirrel radar puts them on high alert. The critters get alert from about seven meters away and flee shortly thereafter; they tend to run about six meters away before again going about their business.
Ready to Bolt
The key point is that it makes a big difference whether or not people are looking at the squirrels, although staying on the footpaths also keeps them calmer. In truly dreadful scientific prose that tries desperately to sound authoritative, the researchers conclude as follows:
“We have identified cues that are likely to be important for risk perception by an urban animal species monitoring its environment. Together with direction of attention of people, urban squirrels were more reactive to pedestrians that showed a divergence from ‘usual’ behaviour (e.g. pedestrians entering areas which are usually human-free), even when not associated with closer approach or changes in speed. In addition to being arboreal (which can include use of anthropogenic structures), which minimizes vulnerability to diurnal terrestrial ‘predators’ (see Herr, Schley & Roper, 2009), general trophic and social flexibility (Baumgartner, 1943; Don, 1983; Koprowski, 2005) may help explain why eastern grey squirrels are successful urban adapters.”
What they mean is that squirrels pay attention to unusual human behavior and eye contact. When they see them, they bolt.
These squirrels are a pretty good metaphor for us, but perhaps not in the way we might expect. Squirrels, like humans, are highly risk averse. We humans feel a loss two to two-and-a-half times more strongly than we feel a comparable gain. In the wild, that makes perfect sense. If the squirrels run away too readily, they may lose a nut or two, but little else. But if the varmint sticks around too long, it can get eaten by a predator. That’s a loss that is permanent and unrecoverable.
We are remarkably like squirrels. If markets are behaving as we expect, we’re fine. When they deviate from what we expect, we get concerned and pay special attention, ready to flee. And when we spend too much time looking head-on at what’s going on (as when the squirrels’ and the observers’ eyes meet in sweet communion)—perhaps checking our accounts online every day or, heaven forbid, watching one of the “business” channels, we tend to trade (read “bail”) far too often.
The research bears this tendency out. And, sadly, the professionals tend to flee as readily as their clients. The metaphor is a bit mixed, but if we have a good plan in place (a crucial “if”) and when the markets are wild, we’d be wise to “avert our eyes” and stay calm.
In the investment world, being too skittish—bailing out of the markets too readily—is generally much more dangerous to our success than holding on too long, especially when the applicable time horizon is a relatively long one. Staying the course through tough times requires that we deal with immediate pain for far-off gain, which is always very difficult for us. That makes this sort of situation that much tougher.
In the financial services business, we spend a lot of time dealing with complex products and strategies. And there’s good reason for that. But the heart of good retirement planning—good financial planning—is simple (if hard to do). It’s informed common sense. It begins with starting early and saving aggressively. Then when the markets get ugly, as inevitably happens, it requires that we manage our internal radar to good effect.
This requires courage, the ability to do the hard, right thing even when we’re afraid. The best retirement income strategy in the world is utterly meaningless unless and until one has the resources to put it into place and make it work.
From 1928 through 2013, using the three-month U.S. Treasury bill as our risk-free surrogate, risk-free money has returned 3.53% annualized as compared with 9.55% annualized for stocks, using the S&P 500 Index as our stock surrogate. Put another way, $100 invested risk-free over that period would have grown to only $1,972.72 while $100 invested in stocks would have grown to $255,553.31. A diversified stock portfolio would have done even better. Obviously, $255,000 is a lot more money than $2,000.
In other words, if we deal with risk like squirrels (and it can be hard to avoid; I don’t want to minimize that reality), we can be left trying to live on peanuts.