Born To Be Bad

Born to be bad

The S&P 500 is now back to about 4,300.  It was last spotted trading at these levels back in February.

Ditto for the Nasdaq, which has been on an absolute tear recently and is up about 23% off the June lows.

Even crypto is staging a mini-recovery of sorts.  Ether is up almost 90% over the past 60 days, with the long-awaited merge now scheduled for September.

The change in asset prices has been drastic – and it is accompanied by an even more drastic change in sentiment.

No more doom and gloom on TV.

The meme stocks are back.

And economists, strategists, and all the other talking heads out there are now presenting a brand-new narrative.

It’s now a story of the Fed getting inflation under control, leading to a decline in the cost of capital and a corresponding recovery in valuations.  Read their lips carefully enough and you could almost see the words “soft landing”.

In other words, pretty much the opposite of what everyone was preaching just 60 days ago – but hey, who’s keeping track?

I have no idea whether the recent recovery represents a bear market rally or the first stage of the next bull market.  No one does.

But the one thing that’s clear is that the financial markets have once again proven how hopelessly bad we all are at investing.

A Stacked Deck

There are good reasons we are fighting an uphill battle when it comes to money.

First of all, we are genetically conditioned to focus on short-term outcomes.

Sure, you may believe that the stock market will be higher in 20 years than it is today.  But the fear, that cold sinking feeling in your stomach, is NOW.

Besides, it’s a sad mathematical fact that some of us might not be around in 20 years.  As my economics professor used to say: “In the long run we are all dead”

Then there’s the natural tendency to seek out bad news.  Your ancestors didn’t survive the Paleolithic age by contemplating those gorgeous views outside their cave.

They survived because they kept their eyes and ears open for the next threat.  A snake in the forest.  An alligator in the river.  A lion roaming the savannah.

And when the folks around you spotted a threat, you RAN first – and asked questions later.

Let’s face it – money is existential.

It puts a roof over our heads, food on our table, and clothes on our children’s backs.  And so, it’s no surprise that the threat of losing money activates the primordial instinct of survival, honed over millions of years.

Finally, there’s the problem of incentives.

No matter what their mission statements may say, the financial media is not out there to help you do a better job of investing.  If it was, they’d be running Vanguard adverts for 24 hours a day (or better still, shut down altogether).

Ditto for all the “advisors” out there.  Save for a few (God bless their soul), the vast majority of investment managers are out to do one thing only – maximize their own utility.

Sadly, that’s much easier done by selling you an expensive, actively-managed product than a boring index fund with a puny 0.0001% expense ratio.

Lessons Learned

The good news is that becoming a good investor is an evolution – and there’s no better time to learn than on the back of a choppy period in the markets.

No one wakes up one morning and becomes great at managing their money.  It’s a process that takes time, effort – and patience with any mistakes you may have made.

It starts by acknowledging our natural handicaps above – and coming up with an action plan to negate them.

The first thing you want to do is IGNORE THE NEWS.

It’s a waste of your precious time and cognitive energy – and it does ZILCH to make you a better investor.  If anything, it degrades your decision-making (and that goes for most news, not just financial).

Kill that stock ticker app on your phone.  Don’t update your net worth more than once a quarter – working that spreadsheet won’t make your money grow any faster.

If you haven’t yet, automate EVERYTHING.  The most amazing feature of workplace pensions and 401(k) plans is that you don’t even see the money.

It goes into your brokerage account and gets invested at whatever level the market happens to be that day.  Then you wake up ten years later and see a nice six-figure balance in your account with what feels like zero work.

Work on your relationship with money.  If you are obsessed with the gains, you are guaranteed to be twice as obsessed with the losses.

Instead, think of your losses as pre-requisites for future gains.  If the stock market was a sure thing, everyone would pile in, decimating the returns.  Instead, every time someone gets freaked out and sells at a loss, it becomes your gain.

If you’re still scared of losing money, start slow.  Sure, you won’t see as much in terms of upside.  But it’s much better to amp up your investing over a couple of years than to go all-in, sell on the back of a downturn, and swear off investing for the rest of your life.

Most importantly, view personal finance for what it is – just one of the ingredients for living a rich, rewarding life.

After a certain level, having more money doesn’t fix your health, career, or relationships.  The financial media won’t tell you that, but those are the real investments you want to be making.

As always, thank you for reading.

About Banker On Fire

Enjoyed this post?

Then you may want to sign up for our exclusive updates, delivered straight to your inbox.

You can also follow me on Twitter or Facebook, or share the post using the buttons above.

Banker On FIRE is an M&A (mergers and acquisitions) investment banker. I am passionate about capital markets, behavioural economics, financial independence, and living the best life possible.

Find out more about me and this blog here.

If you are new to investing, here is a good place to start.

For advertising opportunities, please send an email to bankeronfire at gmail dot com

4 thoughts on “Born To Be Bad”

  1. That was a great article. Just what I needed to hear to stay focused and automate my strategy. To have belief in myself.

    I am guilty of the algorithm capturing my attention and the dopamine hit. I have decided to make a digest and stuff from the algorithm goes into the digest app. I use Evernote and Instapaper for later reading and during my down time. Time is precious and time with family, friends, focusing on my career/side hustle to make more money and thank you Financial Samurai Sam Doggen for your wonderful book which points out the importance of career strategy and of course Banker On Fire.

    Still reading Financial Samurai’s book “Buy this, Not that” and has inspired my career strategy. As we all know it’s important to make more to invest more.

    As I have said in the past the biggest investment is in myself and I am challenged into how I can invest in myself and then I can automate my investments.

  2. Excellent article this. You have really hit the mark with this:

    “Let’s face it – money is existential.

    It puts a roof over our heads, food on our table, and clothes on our children’s backs. And so, it’s no surprise that the threat of losing money activates the primordial instinct of survival, honed over millions of years.”

    1. Thank you.

      Can’t fight instincts honed over millions of years. Best we can do is be aware of them and put the right safeguards in place.

Leave a Reply