5 Things You Shouldn’t Care About As An Investor

I grew up understanding the language of money and my curiosity led me to the art of investing early as well. I started investing (in the stock market) in 2017. Between then and now I’ve learned several things. Among them, I want to share with you some things that we pay attention to but doesn’t matter in the scheme of things. Like they are things that don’t count at all. And you should stop paying attention to them once you learn them from today onward.

I laugh as I write this because I know you won’t stop. I must confess I’ve not been able to stop all myself as well. But I’m working towards it.

So let’s dig in.

1. What return you would have made if you invested in a thing 5 years ago

I called a friend some weeks ago about the need for us to change how we invest (in crypto). Before I tell you what we changed it to, let me tell you what had occurred to me.

I looked at the historical price of the DOGE coin and realized what a kill of money we would have made had we invested in it 5 years ago and hold until today. Never mind that majority of those who are aware of crypto 5 years and that invested either lose their money or find it untraceable (humans don’t think about that just the part alone).

Well, for context, $1,000 invested in DOGE on January 1st would be $121k at the peak price of $0.65. 

But you know the kind of story people have to tell? Here’s one:

This is not an attempt to deny the fact that a lot more people have made money on the same asset. Rather it is to point to you that it is useless to pay much attention to “what you would have gained had you done this or that.” You are currently living in the same period and obviously, you didn’t do it. There’s no assurance that you would have done it 5 years ago as well.

And then again, there are some opportunities available to you now but you can’t see them or you are not patient enough for them to materialise. However, 5 years down the line, someone will say things like this again…

“If you bought this so and so and hold it till today, you will be a millionaire now.”

That’s very easy to say and see. Implementing it now and immediately is tougher. And that’s where your attention should be on.

So when I called my friend, I told him “enough of fantasies.” We have both fantasized a lot about what gain we would have made had we done this or that. We agreed to start working and concentrating our energy on recognizing opportunities that could give us similar returns over a similar horizon. But then again, it’s easier said than done.

Let me tell you another thing that is at play anytime we say statements like that.

Our brain is poor at conceptualising how long 3 months can be let alone a year. And definitely not to talk of 5 years. The brain can’t grasp. So whenever we say things like that, more often than not, our brain interprets it as something that could happen in a rather shorter term (like overnight) not the actual 1,825 days. 1,825 days of up and downs. Some downs as much as 50% from the earliest highs. The brain doesn’t grasp. This is a conclusion I made from observation and extrapolation on Professor Hershfield work.

Brian said it well here: you can’t teach anyone what a 20% decline feels like.

This is the research from Professor Hershfield that explains deeply how bad the brain is at grasping long term decisions that may hurt in the short term.

With all these learnings, I will say again, that your time and attention will be better spent if you spend it on finding opportunities lurking in front of you over an obsession with what could have happened.

This CNBC article is an example of things you should never read as it relates to this.

Knowing what to invest in today that will give you similar returns is infinitely more important than this retrospective knowledge. Even more important is building your mental muscles to be strong enough to hold for the period.

2. Your daily, weekly, monthly and even yearly return is not your focus

By the time I mentioned yearly, I’m pretty sure you probably raised your eyes and wondered what’s he saying. But that’s not a mistake none of those deserves your attention and time.

At the end of the day, what will count is your average return over time. A 50% gain within a month is pointless. You could wake up and the gain has been eroded. Or you could even be at a loss.

So to what end and benefit is the 50% gain of yesterday? Did it make you feel like a genius? Like someone who’s mastered the art and science of investing? Such euphoria and sense of accomplishment are soon wiped away by Mr Market who have no regards for anyone or their feelings.

Average return over time takes into account your capital and the return you have made over time. “Over time” is important here because it makes all the difference. 

Something I learnt from statistics as I do my work is the importance of not paying much emphasis on a point estimate. Rather, attention should be paid to interval estimation.

Advantages of Interval Estimation over Point Estimation |

As you can see from the image above, the point estimate is a replica of logging in to your brokerage account and seeing a 100% return and make your judgment based on that. While the interval is a replica of looking at your return over time.

One is more reliable and reflects reality. The other is just a fad. 

Your performance today or tomorrow or even this year is not what matters. It’s the sum of all performances that is your reality and that’s what you should optimize for. Your reality could off course be a year or a month or a decade. The point is that it is the end that matters, not the in-betweens.

Optimising for “the end” oftentimes may mean, accepting short term underperformance. And let me quickly cheep this in that, no one goes on and on in the market of investing without experiencing some periods of loss. There will be years of 50% gain but there will also be years of 30% loss. In the end, it’s the average that matters.

3. Stop chasing Alpha, at the end of the day, alpha won’t matter

What would matter instead is “do you have enough to cater for yourself?”

Alpha is any return above the market return. That is a return above the S&P 500 return.

Jason Zweig in this article told a story about interviewing dozens of residents in a choice neighbourhood, Boca Raton, FL. It’s one of the wealthiest retirement and communities in the US:

Amid the elegant stucco homes, the manicured lawns, the swaying palm trees, the sun and the sea breezes, I asked these folks — mostly in their seventies — if they’d beaten the market throughout their investing lifetimes. Some said yes, some said no. Then one man said, “Who cares? All I know is, my investments earned enough for me to end up in Boca.”

At the end of the day, what matters is always “earned enough” to afford your lifestyle. It doesn’t even matter if you made no returns at all or made something less the historical market return or even more. Who cares, sure you won’t. Just “enough” is all that counts at the end of the day.

While you have the time and energy, it’s okay to catch the fun and cruise of chasing alpha. My point is to redirect you and remind you of what really matters.

As Ben Carlson noted while recounting a similar story, “the whole point of investing in the first place is achieving your financial goals, not beating the market.”

4. The amount of time and effort you put into your investments is a needless statistics 

This point is equally interesting and unpleasant. Unlike other activities in life where time spent on them may determine how good you may get at it, investing is different.

In investing, the less time you spend worrying about it and “unlooking” it, the better you tend to perform. Investing rewards passive people over active people.

So it will be ill-fated, to imagine because you spend a lot of time “investing” you will do better than those who spend significantly lesser time. It doesn’t work that way.

If I were you then, I will be optimizing for spending lesser and lesser time “investing”. Going back to the example of DOGE from an earlier point, the one who bought and forgot about it will currently be outperforming the active (in and out) guy. However, note that DOGE could also have gone to zero and the same person loses all their money.

It’s this point that makes me favour index investing over, stock picking. Note that as it applies in crypto so does it in stocks. The principle is the same. The passive “HODLers” eats the fastest meat. Optimise for lesser activities. There’s no virtue in spending an enormous amount of time on “investing”. Except, of course, you are in the business of investing like Cathie Wood or Warren Buffet.

5. If you are investing for the long term, you have no business timing the market

Watch this video to understand how pointless it could be trying to time the market.

And if you give up trying to time the market, I bet it will buy you more time. And it will also help the point above of optimizing for lesser time investing.

Did you enjoy this? Ben Carlson wrote 10 things you shouldn’t care about and I got my inspiration from him.