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What Happened to Value

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5 Minute Audio – The Big Move

Six Ways to Tell the Difference Between Real and Pretend Investors

Category: A piece we love

A Piece We Love

As we head into the holiday season, we are encouraging families to discuss their values and guiding principles. On this point – we wanted to share this short, unedited piece by one of our favorite bloggers, Seth Godin. We think he does a superb job of defining what principles are, and why they are important. 

Principle is Inconvenient

A principle is an approach you stick with even if you know it might lead to a short-term outcome you don’t prefer. Especially then.

It’s this gap between the short-term and the long-term that makes a principle valuable. If your guiding principle is to do whatever benefits you right now, you don’t have principles of much value.

But it’s the valuable principles that pay off, because they enable forward motion, particularly when it feels like there are few alternatives. We embrace a culture based on principles because it’s that structure and momentum that enables connection and progress to happen in the first place.

You can check out the original piece on Seth’s blog here

Curious about facilitating your own family meeting? Try out these questions about values and guiding principles that you can pose to kids, partners, and parents this holiday season:

  • What are your values? 
  • Anything you believe that you feel is a guiding principle in your life? 
  • What are our family’s guiding principles? 
  • How do these principles impact the decisions we make?

Six Ways to Tell the Difference Between Real and Pretend Investors

The following is a piece former podcast guest and New York Times Columnist, Carl Richards wrote for his newsletter. We enjoyed his humorous take on “pretend” investors.

Pretending to be an investor is dangerous. It’s not like when you were a kid pretending to be a superhero. That’s because kids generally know better than to confuse “make-believe” for reality. It’s pretty rare that a child jumps off the roof because they actually think they can fly.

But when it comes to investing, adults confuse “make-believe” and reality all the time.

Don’t you think it’s time we grow up a little? 

Here are six ways to tell the difference between real and pretend investors to help get started.

… 

  1. Pretend investors think that financial pornography is real, and therefore, the news ticker scrolling across the television screen represents actionable information.

Real investors know it might be entertaining, like going to the circus. But they would never make a decision because of it.

  1. Pretend investors think it makes perfect sense to change their investments based on what they hear in the news: There’s a new president, so act! He doesn’t like the Federal Reserve, so trade! He criticized bankers, so buy bank stocks!

Real investors make changes to their investments based on what happens in their own lives. If their goals change or there is a fundamental change in their financial situation, then they consider making a change in their investments. But they would never make a change based on someone yelling “buy” or “sell” on a Financial Pornography Network.

  1. Pretend investors think they need to monitor their investments all the time. (The little supercomputer they carry around in their pockets makes it so easy!)

Real investors know it takes a long time for a tree to grow, and it will not help to dig it up to see if the roots are still there. The same rule applies to investments. 

  1. Pretend investors talk about their investments—a lot. They say things like, “I’m long this, or short that.” They use jargon that often does not make sense, though it sounds kind of impressive if you don’t listen too closely. Sometimes they cheer for things like increased consumer spending, higher unemployment, or in some cases, even war.

Real investors understand the difference between the global economy and their personal economy, and choose to focus on the latter.

  1. Pretend investors worry endlessly about the news in some far-off part of the world and the impact that news will have on their portfolio.

Real investors focus on the things they can control, like saving a bit more next year, keeping their investment costs low, not paying fees unless it’s necessary, and managing their behavior by not buying high and selling low.

  1. Pretend investors complain endlessly about volatility in the markets, and focus on days.

Real investors are focused on enjoying the benefits of the returns the market generates over decades.

… 

Look, if it feels like I’m getting in your face a little, it’s because I am.

But I’m doing it for you!

Jumping off the roof because you think you can fly can have disastrous consequences… it just so happens, so can throwing around your money because you think you know how to invest.

If any of the six items in bold above sound like you… you may want to think about what it means to be a real investor.

Or just jump off that roof, and see what happens.

A Forbes Piece We Love

John Jennings, podcast guest and Chief Strategist and President at The St. Louis Trust Company, recently wrote about why it’s almost impossible to beat the market in his latest piece for Forbes. He details why the skewed pattern of market returns stack the odds against regular investors. Read it here.

Hill Investment Group