The following is an adapted excerpt from Stephen R. Foerster’s book (Wiley 2024).
Autopilots should not working properly
Aeroflot 593 took off on March 22, 1994 with 75 passengers on board for a 14-hour flight from Moscow to Hong Kong. 39 minutes after takeoff, the aircraft reached its cruising altitude. The aircraft was flying on autopilot and all the pieces went in accordance with plan. The pilot in command (PIC), Viktorovich Danilov, was resting within the passenger cabin. The backup PIC, Yaroslav Vladimirovich Kudrinsky, was sitting within the left seat. Co-pilot Igor Vladimirovich Piskarev was sitting in the best seat. All pilots were very experienced.
Take your kids to work
Kudrinsky’s two children were on board the flight: 12-year-old daughter Yana and 16-year-old son Eldar. Another pilot, Vladimir Makarov, who was flying as a passenger, led them into the cockpit. Kudrinsky told Yana to sit down within the left seat where he had been sitting and “fly the plane a little bit… Go on, take control.” Kudrinsky then set the autopilot to make a slight turn. The plane turned easily to the left, then to the best, and returned to its original course. This gave Yana the impression that she was causing the plane to show.
Then Eldar took his seat. Kudrinsky set the autopilot again. Eldar asked his father if he could turn the steering wheel. Kudrinsky said “yes.” But Eldar applied more force than his sister and turned the steering wheel in order that the plane turned at an angle of 15 degrees, while the autopilot tried to maintain it at 5 degrees.
Autopilot cancellation
Autopilot functions were invented in 1912 by American Lawrence Sperry. Sperry attached a gyroscopic heading indicator to a rudder to balance the aircraft. On June 18, 1914, Sperry presented his invention on the Aviation Safety Contest in Paris. As he flew past the judge’s chair, Sperry activated the stabilization device. He then raised his arms above his head while letting the autopilot balance the aircraft. In the following round, his engineer climbed onto the wing of the aircraft to display the autopilot’s balancing ability. In the ultimate round, each stood on the wings and waved to the gang. Sperry was awarded first prize.
Back to Aeroflot Flight 593, Eldar by chance overrode the autopilot function that controlled the aircraft’s pitch. Eldar continued to show his steering wheel to the best. But now that the autopilot was off, the pitch to the best began to regularly increase, exceeding the operating limit of 45 degrees.
“Why is it spinning?”
Eldar noticed that something was improper. “Why is it spinning?” The plane was now spinning at a 50-degree angle. It began to descend and vibrate. The G-force increased dramatically, making it difficult for Kudrinsky to get into the seat where his son was sitting. Piskarev tried to compensate for the spin, however it was too late. The plane lost altitude and went right into a spin.
Warnings after which “everything is fine”
Warnings sounded. With the plane now diving at 745 km/h and the G-force increasing, the pilots were disoriented. Then Piskarev managed to regain lateral orientation and shouted to Eldar: “To the left! There’s the ground!” The G-force now exceeded the structural limits of the plane. Kudrinsky tried to get into the left seat and shouted to Eldar: “Get out!”
Piskarev recognized the predominant danger of the high speed and shouted: “Throttle to idle!” Piskarev managed to stop the dive, but he corrected too sharply. The plane began to roll uncontrollably. Piskarev shouted: “Full power!” A second later, Kudrinsky was finally back in his seat.
Kudrinsky and Piskarev desperately tried to regain control of the plane. The plane’s rotation had slowed down. Kudrinsky tried to stop the rotation by alternately pressing the rudder pedals and succeeded, however the speed had increased to 370 km/h and the altitude was only 300 meters. Kudrinsky shouted: “We’ll get out of this. Everything is fine… Pull up carefully!” But all was not well. The plane crashed right into a mountain in Siberia. All 75 people on board were killed.
Autopilots for investors
When investing, we depend on autopilots. Often, we do not understand how they work and their limitations. Automation has made investing more efficient. Index fund fees have dropped dramatically. But not all index funds are the identical. With a Canadian index fund, for instance, you get a powerful sector concentration. Target-date (lifecycle) funds, which reallocate stocks and bonds over time, are autopilots. As investors become older, their exposure to riskier stocks decreases and exposure to less dangerous bonds increases. But age is not the only thing that affects an investor’s risk appetite. Stop-loss orders, one other autopilot, are designed to limit losses. But in volatile markets, there is no guarantee you may give you the option to sell at the worth at which the stock is losing money.
But we override the autopilot at our own peril. Despite all of Kudrinsky and Piskarev’s attempts to avoid wasting the plane, the autopilot would have prevented the crash in the event that they had simply let go of the wheel. Buying and holding an index fund keeps our emotions out of the image and helps us avoid mistakes. Studies have shown that investors – especially men – are overconfident of their trading skills and trade excessively. But this hurts performance, and they’d have been higher off buying and holding an index fund.
One final lesson from aviation: When disaster strikes, we’d like to get well the black box, understand what went improper, and learn from our mistakes. Even Warren Buffett makes mistakes, equivalent to investing in airline stocks. He once quipped, “If a far-sighted capitalist had been at Kitty Hawk, he would have done his successors a great favor by shooting down Orville.” At least Buffett admits mistakes and learns from them.
