[Editor's Note: Registration for the 2024 Physician Wellness and Financial Literacy Conference (WCICON24) is officially open. Now, it’s time to make plans to attend WCICON24 (February 5-8 in Orlando) for four days of learning and recharging with amazing keynote speakers Paula Pant, Dr. Tarryn MacCarthy, and Dr. Jim Dahle. If you need a break from the daily grind while continuing forward on your financial journey, make plans today for WCICON24!]
By Dr. Jim Dahle, WCI Founder
I spend a lot of time playing these days. It just seems silly to turn down the opportunity to do something fun in order to work when we are already financially independent. If you've been following this blog for very long, you know I do a lot of things that life insurance companies don't like (rock climbing, mountaineering, and scuba diving) and lots of things that insurance companies aren't smart enough to not like (road biking, mountain biking, backcountry skiing, canyoneering, and whitewater sports). Needless to say, adventure is a regular part of my life.
Thus, we found ourselves floating through Westwater Canyon on the Colorado River in eastern Utah. I had been wanting to do an early-season (read, high-water) trip through Westwater for a long time. I had previously rafted it at 2,000 cubic feet per second (CFS) and 3,000 CFS. This time, the water was at 8,500 CFS. While not quite the “terrible teens” (13,000-20,000 CFS) that causes even the most experienced rafters to shudder, it was far from a casual trip through a canyon that can be pretty treacherous even at low water. The canyon/river doesn't get any wider when more water is going through it; it just gets faster.
We had four boats for the 13 of us: two rafts, a double inflatable kayak that Katie would be piloting, and my new packraft. My 13-year-old son was bragging about his skills for days before the trip, wanting to paddle that packraft through Skull Rapid, the highest-rated and most intense portion of the trip. While there was no way I was going to let him do that (given that his first trip through involved him hanging on for dear life to the lower side of a raft tilted at 45 degrees while two other members of the party spent 20 seconds underwater in that rapid), I did let him start out paddling it in the calmer waters at the beginning of the trip. He made it through the first rapid of the trip, a Class II. He subsequently tipped it over on a lateral wave in a ripple, rapidly abandoned it, and swam toward one of the rafts to be picked up. When he found out that where he flipped wasn't even a named rapid, he quickly humbled himself and decided to spend the rest of the day in the safety of the raft. We all got a chuckle out of his newfound humility.
After a quick lunch, we donned wetsuits and helmets for the main event. The tricky thing about Westwater Canyon is that it is a series of eight major named rapids, all class III except for Skull Rapid (class IV) in just a couple of miles of river. They are only 0.2-0.4 miles apart. That means if you flip a raft or fall out of the boat, there's a very good chance you will not just swim through the rest of that rapid but potentially the rest of the rapids in the canyon before you are rescued. This is very different from a “pool and drop” river, such as the Grand Canyon or the main fork of the Salmon River. In those rivers, the rapids are huge, but they are always followed by a significant amount of flat, calm water that can be used to regroup and right rafts that have flipped.
This was the point where my son's hubris ended and mine began. A packraft is primarily designed for light weight and packability. It is designed for trips that are a combination of backpacking and easy floating. My raft—with the oar, pump, and repair kit—only weighs 10 pounds. You can blow it up with your lungs if you need to. A typical inflatable kayak might weigh four times that amount, and it's composed of material that is four times thicker. A packraft is neither durable nor particularly sturdy. In a big rapid, it offers little more protection than an innertube. But I was planning to paddle it through seven class III rapids and a class IV rapid in quick succession.
The first rapid was Marble Canyon. I steered through that just as easily as an earlier class III before entering the canyon and pulled over into an eddy as we were getting too bunched together. Upon exiting the eddy, I got tipped over right at the eddy line. Humbled, I pulled myself back into my raft and continued onward into Big Hummer Rapid, which separated me from my raft with ease. It turns out a swimmer travels much faster down a river than a raft, so it didn't take long before my new $1,500 packraft was far behind me. After plunging through a bunch of waves, I swam into an eddy, waited for the raft to catch up, and swam back out into the current to grab it. It was harder to get back in this time; I was much more tired having spent as much time in the water as in the raft so far in the canyon.
Next up are three rapids that are very close together: Staircase, Funnel, and Surprise. It didn't take long for me to come out of the raft again. Katie brought my raft back to me, but by then I was into the next rapid. By the time I came out of that, I was too tired to get back into the boat. I figured there was nothing to do but hold on to the raft in one hand and the paddle in the other and try to recover some strength. Surprise Rapid then separated me from my paddle. I kept peering down the river, knowing that Skull was coming. I did NOT want to start Skull Rapid in the water. I managed to pull myself back into the raft and began hand paddling after my paddle. I managed to connect with it just before Skull Rapid, I pulled into an eddy, and I climbed out on some riverside boulders just before going over the edge.
As I climbed up onto the boulders and peered into the abyss, I saw that Skull Rapid looked very different at 8,500 CFS than at 2,000 CFS. Rather than being an exercise in dodging boulders and holes, it now consisted of a huge drop into a massive wave train. Skull Rapid forms at a sharp left-hand turn in the canyon. At the bottom of the rapid is the “Rock of Shock,” which divides the flow of the river. The left side goes down the canyon. The right side goes into a huge whirlpool known as the “Room of Doom.” At high-water levels, it becomes impossible to even row a raft out of the Room of Doom, especially if it is filled with debris going around and around and around. So, I was not surprised to see a large catamaran tied up in the back of the Room, waiting for water levels to drop so it could be retrieved.
Within a few seconds of my arrival on these scouting boulders, our crew began to come through the rapid. The first raft hit the line perfectly, and while they had a wild ride, they escaped unscathed. The second raft was not quite on target, but it was good enough and also came through without losing a passenger. This was no small feat, as three of the eight boats that went through in that next hour, including a motorized raft controlled by a professional guide, flipped over. Katie came through next with our 15-year-old daughter in their double inflatable kayak. While our daughter popped out on the first big hit, she was able to hold on to the side of the kayak. They eventually bounced left off the pillow of water piling up on the Rock of Shock and went on down the canyon. Once I caught my breath, I launched my little raft, pulled out of the eddy, and dropped off the edge of what felt like a 15- or 20-foot drop into the trough of the first wave. I was doing great, up and down huge waves, through Skull Hole that's formed as the river pulls over Skull Rock. Unfortunately, I lost it shortly after that, and again fell out of the raft. By this time, I'd learned not to let myself be separated from it, but instead of bouncing left of the water piling up on the Rock of Shock, I bounced right, into the Room of Doom.
This was not a particularly terrifying prospect to me. I'd been in the Room of Doom twice before. In fact, we routinely go in there at low water levels to group back up after running Skull Rapid. It is not challenging to get out of this whirlpool at 3,000 CFS. While I knew we were nowhere near 3,000 CFS, I had seen someone row a raft out of the Room at 10,000 CFS, although he did flip on the Rock of Shock on the way out. I figured I might be able to paddle out, and even if I couldn't, I knew there was a backdoor to the Room. You see, you can do an easy 100-foot rock climb up a cliff at the back of the Room of Doom and work your way down ledges back to the river. While nobody is going to do that with a full-size raft, it wasn't going to be hard for me to do with a 10-pound packraft.
Nevertheless, I decided to try paddling out of the whirlpool first. I thought I was going to make it on my first try. I was making good progress and seemed to have plenty of power to get through the current and out of the whirlpool. Unfortunately, every time I hit the eddy line, I flipped the boat. After five tries, I tucked my tail between my legs, paddled over to the back of the whirlpool, picked up my raft and paddle, and climbed out. I rejoined the other boats downriver where they had been waiting for me. The last few rapids in the canyon didn't go much better than the others. I made it through one and tipped out in others but quickly climbed back in each time. Before long, we were out and on our merry way.
It was one of the best learning experiences I've ever had. I had clearly been overconfident in my paddling ability, my boat, and even my own strength. Safety systems—such as my life jacket, my helmet, my wetsuit, prior knowledge of the river, and nearby teammates—were all used. Each one had been critical to my coming out the bottom of the canyon alive and with a smile on my face.
Investors are also known to exhibit overconfidence, even hubris. Men are well known to suffer more from overconfidence than women, too. Hubris is likely even more prominent among doctors, especially those who have only experienced success in their lives at everything they have tried. There are five main forms of this overconfidence that I observe among investors.
#1 Ability to Predict the Future
Most investors dramatically overestimate their ability to predict the future. Those who do not overestimate their own ability, often place their confidence in someone else's ability to do so. This is all done in the face of an overwhelming amount of evidence about the difficulty and low likelihood of successfully predicting the future. This often manifests itself in the form of stock picking, market timing, and speculation into alternative investments with little track record.
More information here:
#2 Expected Returns
Lots of investors have unreasonable expectations of future returns. Most commonly, they project recent past returns into the future. Studies routinely show that after a stock market runup, expectations by the average retail investor of future returns are higher than they are in the midst of a bear market. The ironic thing, of course, is that just the opposite is true. Using average returns from the past when dividend yields, bond yields, and price/earnings ratios are dramatically different from the average is probably folly.
#3 Safety of Leverage
Not a day goes by in the online WCI communities when someone is not advised to take on more leverage by delaying the paying off of debt or by actively seeking out additional debt. Leverage works but it works both ways, and it is best to take a sensible, deliberate approach to its overall effect on your financial life rather than a willy-nilly, piece-by-piece approach only to discover you are overleveraged after a widespread or personal economic downturn.
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#4 Length of Career
Many doctors assume they'll be able to work into their 60s or even 70s, and they manage their finances with that assumption. Then, when burnout, disability, or even death ensue in their 40s or 50s, the whole plan blows up. Moderation in all things, but one should realize that a significant percentage of doctors are not practicing at 60. Consider the possibility that you may be one of them.
#5 Personal Invincibility
On a related note, there are an awful lot of non-financially independent doctors running around out there without disability insurance, life insurance, or even health insurance. Yes, the odds are against you becoming disabled, dying, becoming severely injured, or developing a serious disease in your 30s, 40s, or 50s. But they're far from zero. There is a reason that disability insurance is covered in Chapter 1 of The White Coat Investor's Financial Boot Camp and that life insurance is covered in Chapter 2.
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While being underconfident is not good either, overconfidence can be fatal, whether it involves outdoor adventuring or investing. Know your abilities and design a plan that will allow you to be successful while staying within them.
What do you think? In what ways have you found yourself being overconfident? What can one do to ensure an appropriate level of confidence? How do you see overconfidence manifest in investors around you? Comment below!