First person: Dancing between the random and fractal zones

My parents belonged to the Greatest Generation, those born between 1901 and 1927. Their childhood was filled with wars, upheavals, migrations, separations and much hardship. They survived the last days of the Ottoman Empire, followed by the early days of the young republic. They lived through the Great Depression and saved obsessively.

They loved dancing. When a Charleston piece played on our giant Telefunken radio, they leapt from their seats and started dancing. My mom had a beautiful voice. She occasionally sang what was playing on the radio, but better. What an amazing treat that was.

Outside of these rare outbursts of joy, what I remember at our dinner table was The Silence. We were expected to eat our food quietly. Otherwise, we’d risk my dad’s stern look, or worse, his warning: “Don’t talk!”

Perhaps, Dad didn’t want a distraction while eating. Perhaps, he wanted us to show respect for the food. Maybe he felt guilty thinking about those who didn’t have food. Whatever the reason, we had to be silent at the dinner table. This annoyed me until I left home to attend boarding school at the age of 11.

After publishing my first book on Canadian dividend reinvestment plans in 1996, I wrote articles for Canadian MoneySaver. A few years later, my better half asked me if we had enough money to retire.

That simple question set me off on an amazing journey. Using my engineering background, I started researching. The standard practice was based on Gaussian math, i.e., the perfect randomness of market behavior. This model is the basis for correlation coefficients, efficient frontiers, Monte Carlo simulators and for almost everything we use in financial math.

I looked at the market history closely, and it told me a story. When the right music played, markets danced between the random and fractal zones, just like my parents did when they heard the Charleston on the radio. It is in the fractal zones that portfolios made or lost big money. Every generation has experienced this at least once.

The funny part is, every advisor already knew about this. They lectured their clients: If they had missed the best 15 days in the market, their portfolio would’ve grown 3% annually in the last 10 years instead of 8%.

Unknowingly, they were talking about missing the lucky portion of the fractal zone. But they never discovered the potential of missing the unlucky side: If you miss the worst 15 days, your retirement portfolio would last seven years longer.

Randomness alone was an insufficient model for retirement income planning. I had to include fractal zones as a separate entity, rather than just as the pesky fat tails of randomness. I wrote a set of three articles for Canadian MoneySaver. The international CFP Board in Denver noticed them and honoured me with the Article of the Year award for 2001.

I had to share my findings with larger audiences. I took the same articles, redrew the graphs in colour, and sent them to Financial Planning in New York. Amazingly, all three were published. The following year, the CFP Board in Denver again honoured me with the same award.

A random talk

One morning, I received a phone call from the Society of Financial Professionals. They liked my articles and invited me to speak at their conference in Tampa, Florida. We scheduled the talk for October 21, 2004. It was my first international presentation.

By the time the day came, I must have practiced every slide, every sentence and every word a million times. I did not want to leave anything to chance, so I skipped breakfast and popped an Inderal 30 minutes before my talk.

Everything went surprisingly well. Occasionally, I’d look up and whisper in my mind: See, Dad? I can talk.

Finally, I was on my last slide. Behind me, the luncheon entertainment guy had entered the backstage area. He was hiding behind the curtains, peeking at the audience and waiting for his turn. Suddenly, I heard a flutter.

A parrot swooped onto my right shoulder, then shuffled sideways up to the top of my head, clawing into my scalp with each step. Everyone was laughing. I took a deep breath and acted as if nothing was happening.

I closed my talk with a heartfelt thank you. My new friend, still perched on my head, repeated my thank you several times in my German-ish accent into the microphone. Finally, the parrot guy approached, got hold of his parrot and apologized for this commotion. We laughed. Or maybe, he laughed, and I pretended to laugh.

That day, I finally expelled my dad’s “don’t talk” imprint from my subconscious. Those silent dinners became a relic of my past. My wife and I usually cook together. After each dinner, I thank her. She doesn’t know it, but part of this thank you is meant for my late mom, for all the times I had to be silent and missed saying thank you to her at the table.