Wednesday Welcome: Can being weird make you rich and happy?
Today we have a special Wednesday Welcome from Daniel Crosby, who consults for companies looking to improve their financial-services products and advisory services. He also writes a stellar blog (one of my top picks for personal finance) that gets to the heart of why we do things with our money that even we know aren’t in our best interests. Crosby gave a TEDx talk that’s worth the watch. Can being weird make you rich and happy? Crosby breaks it down for us below…
Do you ever feel just a little…off? I know I do (you’ll find out why once you watch the video), but the good news is that in the world of high finance, a little weird can go a long way. You see, the rules of investment management are different than “normal life” in a few important ways.
- There is no wisdom in this crowd – I travel a great deal and often find myself hungry and in a place I’ve never been before. When I find myself in such a pinch, I typically turn to the Urbanspoon app where I can see crowdsourced ratings of restaurants in whatever place I find myself that day. Never, and I mean, never, has a restaurant that received a favorable rating by my fellow diners been a disappointment. But while crowdsourced wisdom has it’s place in choosing a sushi spot, it has no place in your portfolio. The average equity has taken home roughly 50% of what the market has returned over the last 20 years, owing largely to a tendency to rush in and out when others are (at all the wrong times).
- You can go back to the future – If I asked you what you are doing in five minutes, you could likely tell me with a great deal of specificity. If I asked you what you’d be doing in five years, you’d likely have no idea. Once again, financial markets give us the inverse of our normal experience, as they are far more knowable in the future than they are at present. On any given day, the market is down 40% of the time, so if you’re checking your investments daily it can seem like a very scary place to be. However, at 5 year rolling periods the market has only been down 12% of the time and at rolling 12 year periods it has never suffered a nominal loss. The greatest risk for most Americans is that they will not save enough or be patient enough, not that they will lose their nest egg in some spectacular blaze of glory.
- Ugly ducklings are your friend – In our everyday lives, we are taught to seek out the newest, shiniest and best of everything. Whether it’s a laptop, a car or a house – we want what is “right now.” Once again, the market proves itself to be “weirder” than the rest of our lived experience. Time and again, unloved stocks outperform glamour stocks, small stocks outperform big stocks and stocks with poor recent performance outperform the darlings of the last few years. Being a savvy investor means learning to do something we’ve all had to do with members of our family from time to time – dig deep to find something to love in a seemingly unlovable mess.
So, if you’re odd, see the world a little differently and prefer not to run with the crowd, perhaps you’ll make a great investor. While the rules that work elsewhere don’t apply to money management, I promise you that it can be a rewarding and enjoyable ride…if you just learn to embrace your inner weirdo.
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