Heroes Don’t Rely on Chance — Here’s What They Do Instead

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Today we’re examining a common misperception about risk. It’s often seen as a coin toss: win or lose. But drawing from lessons of the Hero’s Journey, it’s not about one outcome — it’s about growth, experience and steady ascent. Every step forward leaves you stronger, wiser, and better equipped for what’s next.

Today’s newsletter features:

• What Happened This Week

• Heroes Don’t Rely On Chance — Here’s What They Do Instead

• Economic Value Added (EVA)

Here we go!

NEWS
What Happened This Week

• The Federal Reserve chose to leave the Fed Funds Rate steady at 4.25%-4.50% on Wednesday, citing that the potential for rising costs resulting from still uncertain tariff policies has called for greater caution.

• Middles Eastern tensions picked up as Israel launched widescale strikes on Iran last week, countered with missiles from Iran striking Tel Aviv.

• Iran’s exports of oil averaged about 1.5 million barrels per day in the first eight months of 2024, a small fraction of global oil production that ranks well behind the US, Saudi Arabia, Russia, Canada and Iraq.

• Iran’s oil export capability is already severely limited due to ongoing sanctions from multiple countries.

• US inflation, as measured by headline Consumer Price Index (CPI), was reported below expectations for the fourth month in a row at only 0.1% month over month. Even the core CPI, removing volatile food and energy prices, only rose 0.1%.

• The Producer Price Index (PPI), which measures input prices that can trickle down to the end consumer, also came in with inflation lower than expected: both the headline and core rise was only 0.1%.

• Retail sales, as well as housing starts and new permits, all fell in May.

How I See It

I still believe this is a time for added caution, especially for those with short- and mid-term goals for their investments. Focusing on broad diversification is key to reducing the extent of likely volatility, while also maintaining the ability to capture upside if things continue to climb steadily.

Investor sentiment has improved since April. But it’s still cautious.

The problem I see is that, while things could continue strong through the end of the year, investor sentiment remains cautiously optimistic while Purchasing Managers Indexes and the Conference Board’s Leading Economic Indicator shows potential for deteriorating fundamentals.

Sure this could turn around. But it could just as easily get worse with the onset of a negative surprise. It wouldn’t take much to push things over the edge.

While the Israel-Iran conflict is a sad and scary situation, regional conflicts rarely affect global GDP in a meaningful way. This situation warrants monitoring though because of the Strait of Hormuz’s importance to global trade. If Iran were to block the Strait, this could rock markets for a time while new trade routes are instituted. But this is unlikely, in my view, as Iran has never made good on its threats to block the Strait. Such a move also risks ruining its critical relationship with China as its single biggest buyer.

While US retails sales were down, it’s not totally unexpected as many consumers likely chose to make big purchases in April to get ahead of the expected impact of tariffs. Having already made those purchases, many did not recur in May. This is not likely a new trend beginning but the natural result of April’s incentives.

In short, the US economy continues to coast along with mixed signals.

Increasing allocation to the bond and other fixed income portion of a portfolio can help reduce total risk of downside by spreading the risk across assets that move in different ways for different reasons. With interest rates still at a moderate level, if the economy takes a serious turn downwards, bond rates have the potential to drop, which (assuming no default) causes bond prices to rise.

On rare past occasions, stock and bond prices have both been negative in a single year. It is possible. But we invest based on probabilities and weighting the odds.

This type of offset to stocks can be an important risk management tool to help us navigate uncertain times like these.

Disclaimer: The content of this article is provided for educational purposes only and should not be considered as professional financial advice. Readers are encouraged to consult with a licensed financial advisor before making any investment decisions based on the information presented.

“In the end, the world didn’t really need a Superman. Just a brave one.”

-Superman (DC Comics)

PARADIGM SHIFT
Heroes Don’t Rely on Chance — Here’s What They Do Instead

One of the biggest deterrents from taking a risk is the idea of a binary outcome—viewed as success or failure. And given the statistics, failure is the default result for the vast majority of entrepreneurs within a 5-year period.

Scary, right?

But I’d like to propose that this binary perception is an illusion.

In Joseph Campbell’s The Hero with a Thousand Faces, the Hero’s Journey shows us that risk-taking isn’t about a binary win-or-lose outcome—it’s a cycle of growth that always yields something valuable.

The Hero’s Journey has three stages: departure, initiation, and return.

• Starting a side hustle or primary business involves departure from the normal experience of the majority.

• The initiation happens through the myriad challenges faced along the way, especially in the early stages.

• The return can happen in one of two ways:

  • This is the positive and lasting effect on the world through the success of the business.

  • If at first one doesn’t succeed, they still possess a newfound power, knowledge and insight that they bring back to the drawing table for the next cycle—the next departure.

The Hero’s Return begins after the hero overcomes the ultimate challenge, often symbolized by a physical or internal battle that results in profound self-discovery. The benefit they’ve won—whether it’s wisdom, a special power, or a transformative perspective—carries the latent potential to reshape their world.

You’d think the return would be easy. But it actually requires a tremendous decision: to leave the extraordinary realm of adventure and re-enter the ordinary world.

It requires humility, compassion, resolve and courage.

But their experience of the ordinary world is no longer the same; it has become extraordinary due to their newly acquired powers and insight.

Take Superman, born Kal-El on the doomed planet Krypton. His departure was being sent to Earth as a baby, escaping Krypton’s destruction. His initiation was growing up in Smallville, learning to control his superpowers—like strength and flight—while facing early challenges, like saving his town from a crisis or wrestling with his alien identity. These trials gave him his unique boon: incredible powers and a moral code to protect others.

Superman’s return isn’t back to Krypton (it’s gone) but to humanity. As Superman, he shares his gift by protecting Metropolis, risking his life against villains like Lex Luthor or public distrust. Each heroic act is a return, using his hard-won strength to transform Earth with hope and safety. Even when he “fails”—losing a battle or facing criticism—he gains experience, returning stronger, just like an entrepreneur learning from a flop.

What others might call failure, I call initiation. It’s just one step toward the ultimate goal. The key is not to allow failure to be final—and that’s a decision only you, the hero, can make.

An entrepreneur risks financial security, money, time and reputation to build a business, much like a hero venturing into the unknown.

The scary statistic about business failure loses its sting when you see risk as a cycle of personal and communal growth, not a coin flip. Every entrepreneur returns with a boon, whether it’s a thriving company or the wisdom for the next attempt. As the archetypical Hero’s Journey shows, taking risks isn’t about winning—it’s about growing, learning, and sharing to make the world better.

FINANCIAL TOOL
Economic Value Added (EVA)

When you run a business, you’ve got to make enough money to cover your bills and make your investors happy.

That’s where economic profit comes in—it’s a way to measure if your business is truly creating value.

Two Kinds of Costs

• Operating costs:

  • These are the obvious expenses you pay to keep things running, like rent, wages, software subscriptions (like Zoom or Shopify), and supplies. These are (mostly) real cash payments that come out of your bank account.

• Cost of capital:

  • This is what you owe the people who gave you money to start or grow your business, like banks charging interest on loans or shareholders expecting a return on their investment. Think of it as the “rent” you pay for using their money. This cost is often called a capital charge, and it’s calculated based on how much your investors expect to earn (say, 10% a year on their investment).

Two Ways to Measure Profit

These costs lead to two different ways to look at profit:

• Accounting profit:

  • This is the money your business makes (revenue) minus your operating costs. If your coffee shop brings in $100,000 and you spend $60,000 on rent, coffee beans, and barista wages, your accounting profit is $40,000.

• Economic profit (aka Economic Value Added):

  • This takes your accounting profit and subtracts the capital charge—the return your investors expect. If your investors put in $200,000 and expect a 10% return ($20,000), your economic profit is $40,000 (accounting profit) minus $20,000 (capital charge) = $20,000. If you can’t cover that $20,000, your economic profit is negative, meaning you’re not earning enough to justify their investment.

Why Does This Matter?

Economic profit tells you if your business is creating real value for the people who funded it.

A positive accounting profit means you’re covering your bills, but a positive economic profit means you’re also beating the expectations of your investors.

If your economic profit is negative, it’s a red flag—a third party might be better off investing their money elsewhere, like in a different business or even a savings account with a guaranteed return.

This matters because businesses with positive economic profit are more likely to grow, attract more investors, and increase their value over time. Investors want to put their money where it earns more than the minimum they expect.

A recent study appeared to demonstrate that intrinsic value of a stock may be approximately estimated using the following equation:

Book value of equity (which is the liquidation value of physical assets) + Estimated present value of future economic profits

Investors love businesses with positive economic profit because it shows the company is earning more than the minimum return they expect. This makes the business more attractive for funding, which can fuel growth. A negative economic profit suggests the business isn’t the best use of money, which could hurt its chances of growing or even surviving.

Daniel Lancaster, CFA

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