Archives for January 2022

Here is the latest issue of The Journal of Investing Wisdom, where I share insightful stuff on investing I am reading and thinking about. Let’s get started.

A Thought

Have you heard of Kent Evans? No?

Okay, have you heard of Bill Gates? Yes?

Kent Evans was Bill Gates’ first best friend, his classmate at Lakeside School in Seattle, and a co-member of a school-sanctioned computer club called the Lakeside Programmers Group.

In the documentary Inside Bill’s Brain, Bill Gates described Kent as extremely clever, carrying a briefcase with all kinds of gadgets and magazines everywhere he went.

The two self-proclaimed geeks loved scheming about what they would be doing in the future, much to the eye rolls of their classmates who were more concerned with the activities of that moment, the upcoming school dance.

Together, they would read Fortune Magazine and imagine, “If you went into the civil service, what did you make? Should we go be CEOs? What kind of impact could you have? Should we go be generals? Should we go be ambassadors?”

Bill and Kent believed they would go on to do extraordinary things.

Just one of them did it. Bill Gates went on to start Microsoft and the rest, we know, is history.

What happened to Kent Evans?

He died in a mountaineering accident before he graduated high school.

I first read about Kent Evans in Morgan Housel’s brilliant book The Psychology of Money. Explaining the concept of luck and risk, while sharing Kent’s story, Morgan wrote –

Bill Gates experienced one in a million luck by ending up at Lakeside (being one of the rare schools to have a computer those days). Kent Evans experienced one in a million risk (dying in a rare mountaineering accident) by never getting to finish what he and Gates set out to achieve. The same force, the same magnitude, working in opposite directions.

This is just one of the wonderful stories Morgan has shared in his book to explain the important ideas around the subject of money.

Extending the topic of luck vs risk, he wrote –

Luck and risk are both the reality that every outcome in life is guided by forces other than individual effort. They are so similar that you can’t believe in one without equally respecting the other. They both happen because the world is too complex to allow 100% of your actions to dictate 100% of your outcomes.

They are driven by the same thing: You are one person in a game with seven billion other people and infinite moving parts. The accidental impact of actions outside of your control can be more consequential than the ones you consciously take.

Apply this to investing and you would realize that when you judge the financial success of others, and even your own, you must not just look at the returns made but also the risks assumed.

Doing well with money is, after all, is less about what you know and more about how you behave. The earlier you understand and appreciate it, the better off your financial return will be over the long run.

But just avoid dying early.

[Read more…] about Focus on the Risks You Take, Not Just the Returns You Make

Here is the latest issue of The Journal of Investing Wisdom, where I share insightful stuff on investing I am reading and thinking about. Let’s get started.

A Thought

David Whyte, the noted Anglo-Irish poet, said this in a 2019 interview with Krista Tippett* –

One of the interesting qualities of being human is, by the look of it, we’re the only part of creation that can actually refuse to be ourselves. As far as I can see, there’s no other part of the world that can do that. The cloud is the cloud; the mountain is the mountain; the tree is the tree; the hawk is the hawk. The kingfisher doesn’t wake up one day and say, “You know, God, I’m absolutely fed up to the back teeth of this whole kingfisher trip. Can I have a day as a crow? You know, hang out with my mates, glide down for a bit of carrion now and again? That’s the life for — ” No, the kingfisher is just the kingfisher.

And one of the healing things about the natural world to human beings is that it’s just itself. But we, as human beings, are really quite extraordinary in that we can actually refuse to be ourselves. We can get afraid of the way we are. We can temporarily put a mask over our face and pretend to be somebody else or something else. And the interesting thing is then we can take it another step of virtuosity and forget that we were pretending to be someone else and become the person we were on the surface at least, who we were just pretending to be in the first place.

This is a great lesson to take as we dip our toes into a new year.

As in life, so in investing, we often wear masks and pretend to be someone else. We listen to others except our own selves while making investment decisions. And now with the plethora of voices all over traditional and social media that tell us what to buy and when to buy, we are always second guessing our internal voice that may suggest us to do something else.

In fact, we hammer down that internal voice so much that it ceases to guide us as time passes.

The result – we venture beyond our circle of competence to buy investments we don’t understand, we overpay for stocks because others are overpaying (and so it does not seem like overpaying), we trade in and out of stocks because others are doing it and making money at that, and we start believing that investing in stocks is an easy way to get rich quick (which it often seems).

Gradually, our conviction is someone else’s, our stocks are someone else’s, our mistakes are someone else’s, and we become investors we never wanted to be.

Noted financial writer George J.W. Goodman – who used the pen name of Adam Smith – wrote this in his wonderful book, The Money Game –

If you don’t know who you are, this is an expensive place to find out.

By “this”, Smith meant the stock market.

When it comes to investing to build wealth (not to make money fast), it’s a very personal game. The risk you can take is personal. Your financial goals for which you invest, are personal. And your time horizon is personal.

If you understand this well, and play the game you understand well, stock market can be a wealth creating machine for you over a period of time. Else, you will come to regret why you came here in the first place.

So, like David Whyte may have advised, be the investor that you are. Remove the mask that is not you. Because when you do that, you will reach the real you.

Now, when you get that mask off, you may feel vulnerable, but you will be surprised how brave you will feel when you start trusting your own vulnerability.

That – bravery in the face of vulnerability – is the secret sauce of sound investing (and, of course, a happy life).

And that’s the best advice I can offer you as we move into 2022.

* The Conversational Nature of Reality – David Whyte

[Read more…] about My Advice for 2022