Woodturning and Investing

Updated: May 11, 2019

People who know me personally know that one of my favorite hobbies is woodturning (using a lathe to spin a block of wood at 1,000+ RPM while using various razor-sharp steel tools to carefully shape the wood into a bowl or other round shaped object). It’s important to find time to disengage from the markets to clear the mind and stimulate other parts of the brain. For me, that’s usually the time I like to spend in my garage (“Man-cave”) doing various woodworking activities. So, what does woodturning have to do with investing and money management? At first glance, probably not much at all. A more important question might be, are there aspects of one activity that are relatable to the other? Like many seemingly unrelated activities, there are actually quite a few common elements that elevate the results of both. Some examples include the benefits of experience, patience and perseverance; knowing how to read the grain of the wood to improve results, having a healthy dose of humility, and knowing that no matter how well one has prepared, there are almost always unforeseen events along the way and periodic setbacks which should be expected. Lastly, this blog post would be incomplete without highlighting the importance of maintaining some defense and protective measures for when things do not go according to plan.

When I first got into the business of stocks, bonds and money management when I was 23 (2 decades ago), I had very little understanding of how capital markets generally functioned. I’d arrive at the office early in the morning and watch the futures market bounce up and down for a couple of hours before the U.S. stock markets opened for trading. Then from 9:30-4:00 each day it often seemed like a chaotic and frenetic circus with stocks moving all over the place, gyrating up and down for reasons that I didn’t readily understand. If markets were efficient and no new information had come out, why were individual stocks constantly making such large moves? It seemed like a mine field of randomness. How on earth could I make sense of it all?

But as the years went by and I was immersed in the markets, my collective experiences taught (and continue to teach) me volumes about the macro environment, the credit cycle, debt and leverage, monetary and fiscal policy, fundamental analysis, technical analysis, quantitative analysis, momentum, value, short-selling and much more. Depending on the market environment and point in a given cycle (there are many), some factors carry more weight than others. Understanding and appreciating which factors currently carry the most weight can provide valuable insights as to how to better construct and manage an investment portfolio.

One of my first attempts—black walnut—it cracked, split, has tool marks all over it, looks clunky and serves as a reminder of where I began. It belongs in a fireplace.

As it pertains to patience and perseverance—there is nothing more satisfying to me as a woodturner than putting the final finish on a piece of work, exposing its stunning beauty and having it to display in all of its glory. But the best results come when the process is deliberate and unrushed. While it can be tempting to try to hurry to get to that satisfying endpoint faster, a mediocre final product is a good reminder that short-cuts usually don’t create a superior result. Rushing a process often results in a higher incident of mistakes and miscalculations. No matter how big, small or seemingly stable the wood is on the lathe, things can still go wrong and not taking a deliberate approach can quickly lead to a bad outcome (and a wasted investment in wood), even for the best, most experienced turners. (YouTube video of lathe catches).

A few months later (live-edge walnut)…better, but still junk with visible tool marks, an uninspiring shape and visible tool “tear-out” where the cutting technique still needs work.

Starting to improve though visible tear-out around the lip and a mediocre finish. Progress is incremental.

While it may seem intuitive and obvious, reading the grain of the wood before ever touching it with a tool is one of the most important and underappreciated aspects of woodwork. Why? For starters, correctly reading the grain and figuring out the best features to showcase before even presenting a tool to the work usually leads to a final product that displays the best part of the wood, improving the quality of the result while minimizing tear-out and wood loss (as well as requiring less effort and frustration by the creator!). A master woodworker I admire (Paul Sellers) uses an analogy that going against the grain is like “stroking a cat backwards”. Going against the grain will lift wood fibers up like a bad hair day instead of smoothing them down like a piece of glass, Similarly, by studying the market, assessing the current environment and how it may evolve, an investor can prepare and pick better/more timely investments. Of course, sometimes the grain is difficult to read. It may suddenly change directions or be swirly and multi-directional. Likewise, the markets are regularly full of conflicting signals and cross-currents.

Swirling (beautiful), irregular grain

I know that there will always be things I don’t understand as well as some people, and I also know that the market doesn’t care about anybody or their feelings. There is no room for an ego in the investment business. Being wrong and acknowledging being wrong is part of the recipe for long-term success. A person who puts up amazing returns one year might struggle the next year. Similarly, strong market returns in one year may be followed by dismal results the next (1999-2000 and 2007-2008 are good examples). As the old saw goes, “The market can stay irrational longer than you can stay solvent.” There’s a reason this saying is so well known—I’d venture to bet that every investor has felt this dynamic at least a few times in their interactions with markets. One must never be overconfident. The future is unwritten, and things regularly happen that seem to defy logic.

Southern magnolia with a proper finish, no discernible tool marks or tear-out and some interesting character. The wood speaks for itself.

And of course, it cannot be overemphasized just how important it is to have a balanced portfolio that can play defense as well as offense. If one only builds a concentrated portfolio of more speculative growth stocks, they may see tremendous upside when markets are roaring but when markets turn or momentum dries up, often those high-beta growth stocks are hit the hardest and can significantly hurt investment results. Similarly, if one builds a portfolio only of the most defensive assets like government bonds, they are likely to see very little capital appreciation in their investment accounts over time and may even lose purchasing power if their investment results lag inflation. However, a well-constructed portfolio with diverse holdings and different asset classes can result in more stable, less volatile performance characteristics over time. The portfolio may lag markets when they are roaring in bull mode but may also outperform and provide relative stability when markets turn. When I turn wood, I ALWAYS wear a breathing apparatus and a face shield to make sure that I’m not inhaling dust particles, and if anything happens to fly off the lathe for any reason, my face/head has a layer of protection/defense.

Australian red mallee. Despite best efforts, sometimes unforeseen things happen. This one flew off the lathe and hit me in the face mask, chipping the bowl but sparing my head.

Ultimately, with experience, patience, study and proper preparation, and a well thought out process, the results should improve with fewer/less severe mistakes along the way.

Live-edge cherry bowl.

Winged, Australian coolibah bowl.

-David For those who have Instagram, follow me here if interested in other turned pieces.

These are my own thoughts and points of view.

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