Betting Heavy when convinced
And other such investment advice
This article is a consortium of things that I think about how or why to invest money. My opinion on investing is fundamentally split, between thinking of it as a waste of time and a necessary evil, and this post is going to explore investment advice in both directions.
The idea of writing it was triggered by a good friend of mine, Henry, who is one of the most knowledgeable people on this topic, whom I know. Somebody, who is constantly reading up on it, spending considerable amounts of brain power on making better investment decisions. I wish he had a blog I could link to from here.
So. Why is it titled 'Betting Heavy when convinced' ?
I think that diversification is good, but that if there is a considerable upside to something one should use most of the leverage one has. Never as much as to go broke and start from 0 again. Being ousted out of the game is the only thing one should worry about and avoid. So beware of risks that can kick you out of the game entirely. Risks that make you start over.
But if you follow this rule of thumb, you should nonetheless bet heavily on the things you believe in. I want to stress that. If you have truly understood something, you can bet. When you know why something is worth more or less than the market currently thinks, you know more than the market and I think it is a form of intellectual honesty to bet on it. And to bet heavily. That's called integrity and it will teach you that a) you probably don't know as much as you thought and b) by extension a lesson about life in general or you will be right and rewarded pretty heavily for your correct bet.
Seeing Crypto fall down this year but knowing enough about crypto currencies to see that they are still very far from having the impact on society that they can have in the future, it seems that only putting a small amount of money into them was a stupid mistake. One could have doubled or quadrupled their money by now already, because the market crashed and mispriced crypto completely for a while.
And I think that is something that I should think about more... Or should I?
Meta Investing Advice.
When investing, I think one thing is more important than anything else, and that is this: "Do not over-think or over-do it."
Time in itself is an investment. And even though I might be able to have the most financial impact by spending all my day thinking about what to trade and how to trade it, this is not what I should do.
When it comes down to what I want to be doing with my time, that's not it. To be honest, it does not even come close to the top of the list. There are simply too many things to do, to try out and experience.
I, personally, would much rather read, write, do parkour, meditate, photograph, code, climb, hike, listen to music or podcasts, watch MIT lectures, meet friends, practice piano, play computer games or travel the world on a budget. I would rather sit still and observe the working of my mind than worry about how to invest better... Think about that for a second and let it sink in.
And if you are honest with yourself, is analyzing market trends ** the thing you want to do with your time? Especially if you already are in the top 1% of earners in the whole world and live a life that is better than those of almost every human that has ever walked upon this earth? Is that the best use for your time you can come up with? Do you need all that money?
In the end, money is only a means to an end. It is something that has not value on its own. Owning more than I need, is a stupid thing. And worrying and aligning my life towards money - or investing for that matter - is an even stupider thing still.
Making some solid decisions every once in a while, sitting still and not bothering about investing, the rest of my days and instead using my time to build skills, to play, to work, to learn is more than enough.
And it will, over time, forge a character that can generate wealth in the long-term. And I think that is the better thing to do. And funnily enough, in the long run it is probably the thing that will build more wealth overall anyways.
Hard but clever work, with some simple investments, to gain compound interest from some of the money one earns. But those can be simple not much thinking required investments, some ETF, maybe some crypto, some Google stock and that's it. Leave it there. Be done with the money game.
The Value of Work.
Work that creates value is the best investment there is. Because work can pay bigger dividends than buying crypto or stock or bonds or whatnot, ever could.
Don't think 5x or even 10x, not even 100x over 10 years. But think compounding effects of hard and clever work, effects that might easily make it worth a 10000x or more. The catch is that time invested, especially in learning and good execution and good decision making, can have unbounded effects. Especially in our economy, where value can be created at an immense scale and is in not tied to pretty much anything, like time or labor, anymore.
An economy where knowledge and information can be instantly transmitted and the value generated by a single person sits at a un-imaginably high end of the scale. It might as well be without any bounds. If one looks at people like Elon Musk or Jeff Bezos, it becomes pretty clear what that means.
For them it would not make sense, to invest a lot of time thinking about how to "best" invest their money. For them it is about creating value in this world, not by means of moving their money around, but by sitting down and doing the work.
Become a baker.
They understand that their value is not in their bank accounts, they add value by building companies, by assembling teams and getting people together to do great, meaningful work, at a huge scale. Instead of spending time to decide which pie to buy, they build their bigger, better tasting pie. They learn how to do things and then execute on them and that's why they are among the richest people in the world.
So instead of spending time, moving value around and focusing on small improvements, you should instead look for ways to make the pie bigger overall. Or invent entirely new forms of pie. And the first step on that way is to learn, to develop the brain, the character, the person capable of doing the work. Becoming a baker is probably the best investment you could make.
This, in the end is the only thing anybody will ever truly own. Themselves. And even that picture, of us owning ourselves, in the light of neuroscience is crumbling. But that's a topic for another time.
Thinking about it this way, bothering about money is a bit like bothering about clothes that one wears... It is a form of social signaling, of posturing, but fundamentally something without meaning. It is focusing on something external to us, that has no value, besides when we spend it for things that we need or want. As a tool to gain access to experiences that we otherwise couldn't have, like traveling or good meals.
And even then. Money has a cap after which even the returns of being more happy with those "better" experiences subside. There is a point where having more money doesn't make a positive difference anymore. And that point is reached pretty early. When one can choose what to do and when to do it and still has enough money to afford the basic necessities of life, without having to worry about them.
Heck, there are even people (monks and the like) who lead immensely happy and fulfilled lives with much, much less than that. So money can not be the important factor for happiness in life. There are people living now, who prove by counterexample that money isn't a necessity for happiness at all. So why spend so much time worrying about how to multiplying it by investing?
The value of Happiness.
When I am able to spend my time with things that make me happy, and I don't have to worry about money anymore, than that is the perfect place to be in. It sounds to me like the much better (maybe even the only?) option. It is certainly better than incessantly growing the pile of stock one sits on, by clever trading or what not.
Time is too valuable, to splurge on things which don't matter, because it is so limited. And money and means of acquiring more of it fall into that category of things which don't matter on their.
If I loose that out of sight, I might as well be dead already, because I will waste my short time alive. Because I'll throw away my life for something that I don't care about. For something that I will regret in the end.
But, some pointers to ideas, nonetheless
If you still want to invest money and think about, how best to do it... here are some general pointers and things you might want to read up on, because they are important for understanding how investing (or generally markets and money) work. I find them interesting for the intellectual stimulation and explanatory power they provide, and only picked them up as a side effect, not because I wanted to earn more money
So, some ideas I found interesting which you might want to check out yourself:
- Know of Nicolas Nassim Taleb's idea of a barbell strategy. Diversify and make your portfolio anti-fragile (another idea of his).
- Think of optionality, things that have little downside but potential huge upsides and long-term future are what makes sense. Those are anti-fragile.
- Bet heavy to use your leverage, but don't go broke.
- Be aware of how the financial system works and have a general understanding of the risks inherent in it.
- Know about Black and White Swan events (another of Taleb's ideas, coming to think of it, you can probably just read some of his books ^^ Antifragile, Black Swan, Skin in the Game etc., his style at times is a bit annoying to me but if you can look over that flaw, there is a lot to be learned from him).
- Be aware of your shortcomings and biases.
- Think about what people want and why they want it. And then figure out which companies can provide that value better than others. If other people don't yet know that those companies can provide for their needs, and you find them priced wrongly, then that is when you would bet heavily and can make little fortunes from it. Good investing is about finding the few opportunities where you can be sure that that is the case.
- Understand that value in the stock market is not necessarily tied to value in the real world and that people act irrationally and that this irrationality can move the market in violent swings, both, up and down. (that's what White and Black swans essentially are + things that are unpredictable events with crazy consequences like the Corona Pandemic or an asteroid hitting earth etc.)
- Know about how taxes in your country (and other countries) work and pay them. Sincerity or integrity aren't things you want to compromise to gain an advantage in investing. In the long run it will probably bite you in the ass. That can be it's own idea , don't compromise yourself, to gain an advantage when trying to make money. The psychological cost is bigger than the financial gain.
- Keep reflecting rationally on your choices. Ask Why? Ask it, again. And again. Until you ** understand what's going on.
- Build things and use money to help you build things. The best investment is the one which build a better future by successfully innovating. Find companies that are in the early stages of doing so. Because later on they will be priced highly since other people have noticed them just like you did and so their price accurately tracks the value they create. If you can't find companies like that to invest into to help them build their version of the future, go and make out your.
- And finally, study the wisdom of Charlie Munger. He has a lot more advice on both living and investing than I have. Go through the ordeal and acquire your version of your useful set of mental models. Learn the multidisciplinary basics. This is probably the single most valuable thing you could do. And it will be valuable not just for knowing how to invest better, but far outside the world of investing as well. Learning mental models is essentially about updating your beliefs about how the world works and that's why it will make you a better human, overall. Better in the sense that you will be better able to understand what is going on outside and inside your head and therefore navigate the world you find yourself in much more effectively.
In the end...
All of this is not that important. Once again, it is not a thing that matters. Somebody who works a job they love more than anything else in the world, can happily spend all their time with this particular job for the rest of their life. They will have more wealth than any investment could ever give them.
Even if they made 1000x on cryptos, to them it would not matter all that much, because they would still do the same thing they did, just as before. Simply because they love it so much.
And I would much rather be that person, happily working on something that matters to them, than the one spending all their time thinking about investment strategies and worrying about how their financial assets perform. Even if one has more money than the other in the end. Of what use is that money to them if they regret having spend all that time acquiring it? When they look back on all the opportunities they missed and imagine the life they could have lived, if they had spend the time to find out what they truly wanted and then followed where that path would have led them?
The only thing better than possessing a skill that you love and that can sustain your life for the rest of your days, is if that skill is highly sought after by society. Because then, you will be drowning in wealth, if you choose to do so. And furthermore you will give something meaningful in return. You can be happy and wealthy, without either of them feeling like effort. The hard part is finding out how to do that. It is about finding a way to reconcile your wants with those of society. And that is a difficult task. Maybe, who knows, writing down what you know is an activity like that?
So this is my final advice on investing. Think about what you want to spend your time with. Wisely. It is the most important investment decision, you have to make. And the better your decision making is here, the better your life will be overall.
And on that insight, I am betting heavily. I hope you do too.