I am writing this post on a plane headed to Milan (trip of a lifetime, more down below). We are sitting in a small two row section right behind business class. The configuration of the plane is two-three-two. In the front row, in the middle of this little section is a husband and wife with two little children. These people are having a bad day in more ways than could be counted requiring countless interactions with the flight crew. There is chaos with their kids, some sort of bassinet issue, who knows what is going on with what seems like nine pieces of carry-on luggage, the dad is up and down constantly. I have drawn the conclusion that this is how their life is every day. I could be wrong of course but my bet is constant turmoil and difficulty.
But it doesn't have to be that way, there is some sort of I don't know what where this is how they've evolved into their adulthood. It is exhausting to watch even while listening to Star Wars The Force Awakens. I think I know enough people to say life doesn't have to be this way; the people whom I've known who live this way do it to themselves…again based on my anecdotal observation.
So it is with investing. We look at behavioral factors that make investing so much more difficult than it needs to be. It may not be easy to participate successfully in markets but it is eminently achievable. Here, success is not defined by beating the market, as any mediocre (or better) investor will at least occasionally beat the market but all investors will regularly lag markets, but instead is defined by having enough when you need it (presumably for retirement) without blowing yourself up being too fearful or too greedy.
Invariably, investors gravitate to some form of portfolio management process early on in their investing lifetime and then this process might evolve slowly into something little different or much different in time. If you're a buy and hold fund person you might evolve into using some individual stocks in conjunction with your fund strategy. That might work out or not but probably is not ruinous by starting with a small exposure to a well-researched stock or two. What often happens is that the mutual fund investor reads something on the internet about a can't miss lottery ticket biotech stock that goes on to in fact miss, not get the FDA ruling they need or some other calamity.
Many years ago a blog reader left his tale of woe in the comments of a post where he put 25% of his account into some biotech stock that then quickly went poof on some sort of FDA problem (this is a story I've retold many times). That is a pretty dramatic example but there are countless others. I have one acquaintance (not a client) who takes unimaginable risk (unimaginable from the viewpoint of someone who's been in the business his entire adult life). He has not blown himself up but is he lucky or good? It is clear to me he does not understand the kind of risk he takes.
What about the people who take advice from stock market television? How often does that go bad? We haven't even gotten into the most common biases and fallacies.
The list is endless, have the introspection to know when you're too far off your path or going down a road to risk that you will regret. The worst time to find out you have the wrong strategy is after it blows up.
Back to Italy, I've mentioned before we all have a finite number of big trips we can take in our lifetimes. Finite as a function of finances or life circumstances. In the context of retirement planning I think it makes sense to knock a few of these trips out while you're still working; financially you may not be where you think you'll be at 60 or 70 or 80 and more philosophically; life is about the journey not the destination.
We paid for the tickets using miles and we used Airbnb for the places where we are staying as we move around. However much this trip could cost, we lucked out.
We brought lots of film so hopefully we take some interesting pictures.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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