“Investments have risks, they have returns, and they have costs. Everything else is marketing” -Rick Ferri
Warren Buffett is currently 87 years old and has a net worth of approximately $73 billion. Let’s say you poll 10,000 American thirty year olds across all income brackets, geographical areas, races, and religions. The poll will ask them one simple question:
“Would you be willing to trade places with Warren Buffett? You instantly have a net worth of $73 billion but you are now 87 years old as opposed to 30”
If the responses are honest I’d imagine you would get an overwhelming negative response. Not one person I have posed this question to has ever responded yes. We can draw the conclusion that most people value their time here on Earth in the tens of billions.
This begs the question, if we place the value on a year of our life somewhere in the multi billion dollar range, then why do we waste time worrying about things that are beyond our control or others that add little to no value to our time here?
My first realization of this in regards to investing occurred when I was in the 5th grade. That year I decided to do my science project on the hypothesis that buying and holding a group of stocks for a period of two months (I believe that’s how long we had to complete the project) would outperform a separate strategy where I picked one new stock every week for two months.
Of course, looking back now I am well aware you can not draw any valid conclusion of statistical significance from a two month sample size.
As excited as I was to begin testing the hypothesis, my excitement quickly faded. Back then we really didn’t have the internet at home to look up stock prices, so everyday I had to go through the stock quotes in the newspaper and record the prices by hand. It was tedious and got old pretty quickly.
Plus I had the pressure from my trading strategy to try and find new stock every week that would outperform. I really wanted to disprove the hypothesis and it stressed me out. No matter what analysis I did, it seemed to have no impact on the results of the trading strategy.
My hypothesis was validated by the end of the project. At the time, I had assumed this must be the conventional wisdom among many investors (wrong!). Buy and hold was a lower maintenance, lower stress strategy, and had yielded superior results.
Throughout high school and college I began reading a lot of different books on finance that reiterated my findings with much larger sample sizes and significance. Not only is there a large amount of data showing retail investors tend to underperform over time, but so do the professionals. However, I had begun discovering that a passive approach to investing actually was not the conventional wisdom among most investors. If anything, it was the opposite.
The more and more I spoke with people about investing, the more I noticed people were attempting to control the uncontrollable. Why would they cause themselves all of that undue stress for an exercise that was unlikely to add any value to their life (in reality, it more likely subtracted value).
What the market does is outside of our control. No matter what you think you know, there are people out there who know more and have already priced that knowledge into current security prices. I can’t recall one single positive conversation I had with a client in 2016 in regards to the upcoming presidential election. Many thought that no matter what happened, their portfolios would suffer. The good news though is almost everyone stuck to the plan we had in place.
All of that time some investors spend checking their portfolio values, trying to time the market, tinkering with their allocation, worrying about political issues, and glued to the computer screen could be spent walking their dog, playing with grandkids, exercising, reading a good book, seeing new places, or learning a new craft.
We obviously value our time here at a very high number, which is why I am not a fan of worrying about things beyond our control. What we can control in financial planning is how much we save, how much we spend, what debts we take on, plan for big ticket items, what risks to take, how to plan for an unexpected death etc.
When I started that science project in 5th grade my dad wrote a letter to Warren Buffett telling him about it. Below is a note he wrote back to me wishing me luck (notice the stationary is on recycled U.S. currency).