Discover more from Psychology of Investing
Be careful what you wish for
Wishes may come true, but with many invisible costs
Few questions that I have been thinking about recently :
You don’t like to drink or smoke, but most people open up incredibly well during drinking & smoking. So should you entertain some vices or not?
You want to specialize in a subject and hence eliminate a lot of reading outside of that domain, but that domain itself has so much knowledge that everything you have eliminated gets replaced by stuff you need to learn about this domain. You still are left with a lot of stuff to read and no time to finish it all. Should you specialize or learn generally?
You may earn USD 100 million lottery, but it will deprive you of the hustle and attitude that comes along when you are constrained for opportunities and money. Having everything has turned out to be a curse for many who got it all on a silver platter. It killed all motivation to work and strive in a chosen domain. Do you wish to have it all or are you willing to climb the mountain on your own?
You’d like to sleep for 8 hours, go for an early walk in the sun, eat healthy, and work out regularly. But almost everyone dear to you compromises on quality sleep, snoozes the early morning alarm, loves their pizza and burgers, and hasn’t seen a gym in years. So do you stand out and become an anomaly or tag along with everyone else?
You’d like to invest all your money in this brilliant idea. But you are left with no money for the next idea that comes along. If the 1st idea is a success, you're a hero. If the first idea fails, you're a riches-to-rags or rags-to-rags story. So do you bet on 1 or do you diversify?
You’d like to be nice to all, but many will take you for granted if you are nice all the time. So you choose to be nice only a few times, leaving most confused/uncertain about your demeanor. Being nice always doesn’t turn out to be nice almost always.
You’d like to be an entrepreneur, but you will have to let go of the safety and security that come along with a paycheque. If you are an entrepreneur, you’d prefer some stability in your cash stream, but if you opted for that through a job or a freelance project, then you will have to let go of your freedom. So should you quit?
You’d prefer a comfortable lifestyle through a better and bigger home/car/flights/office. But this comes with more expenses leading to the Diderot Effect and less money for savings and investment. Should you seek short-term gain for long-term pain?
A fancier piece of clothing gets you appreciation from others and some recognition too. But it also builds an expectation for you to be dressed a certain way at all times which leads to lifestyle creep. Should you dig a hole that requires you to keep digging the hole?
A simple piece of clothing may create an impression of you doing alright at work and in life. Some even might choose to ignore you while inviting many to their parties and events. But simplicity provides you with genuine friendships that don’t judge you or expect you to be a certain way. This doesn’t make for a good Instagram profile, are you ok with that?
You’d like to pursue an Executive MBA post working hours. But you must also compromise on social time off with friends and late-night movies. That’s a pain, but can you make peace with long-term gain instead of short-term gain?
You want to make tonnes of money and have made peace with the work that will be required in investing i.e. reading research reports, going through company filings and con calls, modeling the cash flows and valuing the same, keeping track of the various moving parts - all of which could take 20+ hours a week at the least. But this would require you to resist the temptation of buying on a tip, acting on impulse, acting on FOMO, and drowning in information about everything else. Can you wait and be patient to pull the trigger? Or will you give in to your impulses?
You could be a passive investor but lose out on the dopamine hits that come along with investing actively in markets. Of you could be an active trader, but risk losses and peace of mind. So should you trade actively or invest passively?
Companies are durable when they have less debt on their books, but if they want to grow they most likely have to increase debt on their books, risking a weak balance sheet. Should they leverage or not?
Management could act in self-interest, but jeopardize companies’ long-term survival. Or they could work in the interest of the company, at the cost of their own personal windfall in the short term. Whom should they serve?
Oil companies can cut all spending on oil & gas projects to appease climate activists, but in turn risk the energy security of their own country, leaving them at the mercy of unfriendly countries. Should they go green all the way?
Auditors can ignore the accounting shenanigans and sign off on a financial statement to please their clients, only to increase the existential threats to their own company by encouraging this behavior within their bench strength. Should they cheat or should they uphold values?
Everything is a trade-off.
There is no escaping this reality.
Every action leads to an equal and opposite reaction.
All it comes down to are nuances that take a lot of mental agility to juggle well.
Hence an appropriate answer to most questions almost always is “It depends”
“It's not about binary but awareness of Oneness riddle. Between two extremes I choose the way in the middle.” ― Ana Claudia Antunes, The Tao of Physical and Spiritual
Think about the yin and yang, heaven and earth, black and white, light and dark, pain and joy, success and failure - it’s all a part of a package and will be with us irrespective of our stature in life.
Make peace with it, bite the bullet, and move along !!!
Recommendations of the week #
Young Money wrote a brilliant piece on offers you shouldn’t accept. It’s a very subtle topic and will make you think hard about anything you say YES to.
Morgan Housel delivered another timely piece on the nuanced topic of trade-offs. He covers the topic of debt which has nothing to do with money. It refers to the expectations people/markets have from you, only because you created those in the first place. This only makes it harder for you to live up to those insanely high expectations leading to very high costs for you. And it happens without you realizing it.
Both these pieces are related to the context of my newsletter today. You will benefit immensely by reading these two posts along with mine.
Wishing you a fantastic weekend ahead.
Sending you loads of love and luck 🧿