I’m starting to suspect that investing is a mediocre hobby. Optimistically, there’s the chance that your extra effort will produce superior long term returns, and allow you to lead a wealthier, more abundant, and most importantly, freer life. But mostly I think the promise of a better life through superior investing is just a trap.
It’s a tempting proposition because most of us know someone who has, or claims to have, produced massive investment returns by concentrating their money in a handful (or one) of lucky investments that paid off big. And of course, these people are easy to find because they are rightfully happy to talk about their success.
On the other hand, with most people, as I get to know them better and we start opening up to one another, I learn about some bad investment in their past that went down 80% and never came back. These forays aren’t always ruinous. Their initial investment was typically about the same starting amount as it was for the people who got lucky with a 10-or-20-bagger return. What made the difference between these results? Was it luck? Skill? Among the “successful” investors, I notice that their knowledge usually isn’t as complete as they think it is, so I lean towards luck.
But where the rubber meets the road is this: how does this investment affect their lives?
Getting lucky with your initial investment is more of a curse than anything. You’re forever seeking not only the financial high you got from that venture, but also the emotional high that comes from getting a lot of money very quickly. It radically reduces your ability to go back to normal life, to a steady and reliable plan for achieving your life’s goals. You won the lottery, but winning the lottery isn’t a viable life strategy. Moreover, unlike winning the lottery, this investment by itself does not usually multiply into enough money to provide for all those goals. Supposing you dropped $10,000 into a stock, and it grew to $200,000. Great! Now what do you do? A good amount to have accumulated for retirement is more like $2,000,000, especially if you want to retire young(ish).
What are you to do with that? Bet the $200,000 on another high-risk investment in the hopes that it will leapfrog you to the $2,000,000 mark? That’d be sweet, but what if you lose? Conversely, maybe you split the $200,000 and take 20 bets of $10,000 each. That’s smarter, but you’re still playing the same game, and you end up with a similar problem. Namely, you still might not win big (or even keep up with inflation), and even if you do, it doesn’t necessarily translate into fulfillment of all your financial goals. You still need some plan that will deliver you to your goals with the highest probability of success possible.
Another problem is mundane but I’ll mention it briefly. Investing in stocks (or real estate, crypto, bonds, or gold) is mostly a zero sum game. That matters for you because you’re taking valuable time, attention, and resources away from other areas of your life that aren’t zero sum, where your effort could really make a difference in your life and the lives of others. Consider what happens when you read a really great book that expands your knowledge and perspective. No one else gets dumber. In fact, on average, everyone gets smarter. If everyone were working hard on improving themselves and learning useful shit, we’d have a utopia. A golden age!
But imagine if it was just you. And you wanted to learn how to make more money, do a job you like better, have higher quality relationships, or better health! But instead you’re putting your time into picking individual investments, or developing the perfect strategy, or trying to guess when the market will bottom. Suppose you put an hour a day into it, whether studying investing or learning skills to improve your life. Suppose, hypothetically, that you’re successful and that over your career you beat the S&P500 by 2% a year. Yes that adds up to a lot of money. However, at the end of your career, there still looms a massive gulf between where your life is (even factoring in the unjustifiable assumption that your part-time effort actually does translate into higher returns than the full-time teams of professionals who fail to beat the market), and where your life could be if you had invested that time in your own development.
Why is this? Because what’s better than earning a slightly higher return on a small starting amount of money, is learning how to make (and save) significantly more money. This is especially true if you create a situation where you can own part of what you’re working on all day, whether that means royalties, stock options, or your own business.
Still don’t believe me? Look at my life. I’m a financial planner. I manage retirement portfolios and taxable investments for a living. I have the CFA charter. I have the CFP® certification. I am a pro. I have studied this shit fastidiously. I am smart and hardworking and interested in this stuff. But even for me, the highest value thing I can do for clients, is almost never improving investment performance beyond what my simple, robust investment strategy can deliver. My value is in conversations, in long term thinking, in coaching, in retirement planning, tax planning, and plain-old helping people’s money last for the rest of their life.
Are you a financial planner? Are you doing this professionally? Are you still wasting your life doing this stuff in your free time? Dude, why? Practice and become a golf coach. Study and become a sommelier. Drink beer and get an MBA. Or write a book. Go to therapy. It’s amazing what you can do to improve your life, how quickly you can do it, and how much more actual money you’ll end up with if you spend your time learning interesting and useful shit.
Here’s another hypothetical for you. Suppose you actually become a great investor, a professional money manager, build a successful career doing it, and retire at age 40 with a tremendous pile of money. Great. I’m going to say that accomplishment has probably required a solid 60 hours of work each week between age 18 and 40. Huge dedication, lot of learning, but apparently worth it since you can now enjoy your financial independence. My question is, for you, having done that, what do you do with the rest of your life? Stop and think about that for a minute. Consider the full range of possibilities available to a rich 40-year-old. What do you like? Who do you want to spend your time with? What’s worth your time? Now, let me ask this? Was your answer, “I want to be a professional investor, or at least keep investing and growing my own money with exactly the same seriousness and tenacity that brought me to this point”? If it was, send me your contact info and maybe I’ll invest with you, invest client money with you, and we can all get rich while doing what we love. But if your answer was something else, anything else, even “I’d still want to dedicate my life to investing, but I wouldn’t want to spend 60 hours a week doing it…” go do something else. On the day that you eventually die, it is important to me that you die thinking of a life well lived (any way you personally define that), rather than of your investments.