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It’s John here. It's been great to meet some people in person lately! I’m out in New York right now with a few of my colleagues, putting pen to paper and planning for the future. I’ve also had the opportunity to meet a few Secfi clients and potential clients in person. I love the flexibility of remote work, but getting to connect with those I work with face to face is always a welcome treat.
Maybe this is why I’ve been introspective lately — getting that human connection and interaction — and wanted to write about something I’ve been thinking about a lot lately: comparison.
This issue of F+F is slightly different than our usual (apologies if this isn’t your vibe). But I believe it’s important to share my perspective as a portfolio manager because investment philosophies and life philosophies are often intertwined. And when you work with an advisor, it’s important that the philosophy and approach they have resonates with you.
With all that said, here are my thoughts. I hope this is something you enjoy reading, whether you agree or not. Either way, I welcome your feedback if you’d like to see more issues like this in the future (or not!).
In the two decades since I graduated high school, the world has changed significantly. My cohort of “geriatric millennials” is the last generation of people who experienced an analog world. We existed during a time before the internet and when personal computers were rare. We also experienced the huge technological and cultural shift related to these inventions and their proliferation.
The digital world we live in now has tremendous benefits, many of which we take for granted . But — and maybe this is just my “geriatric” millennial mindset speaking — it does come with some tradeoffs.
For example, when I was a kid, I compared myself to my classmates at school, the neighborhood kids, my siblings, and cousins. That comparison was localized. It was people I knew well and physically interacted with on some level. Once or twice a year there would be some standardized test that compared me to some national or statewide cohort. But that’s as far as it went.
For those who grew up, or are growing up, in our, now, digital world, comparison is global. The “ideal” and the best of the best are constantly in our faces. We used to “keep up with the Jones’,” the hypothetical better off neighbors down the street. Now? We keep up with the Kardashians, an unrealistic image manufactured for entertainment. We know it’s not “real” but most of us can’t help but wonder why we don’t live those charmed lives.
I don’t know about you, but constant comparison makes me feel like a hamster on a wheel. It’s exhausting, and it just makes me feel bad. I’m reminded of the famous experiment where capuchin monkeys are perfectly happy with cucumber slices until they see their neighbor getting grapes. They lose their minds!
There is lots of research being done on the impact our digital world is having on us humans. In many cases, the answers aren’t clear yet. From my perch as an investor and advisor, I see the comparison game playing out in some potentially unhealthy ways when it comes to money. Some people are calling it the “degenerate economy.” It’s the all-or-nothing attitude that some folks have. It’s often expressed as the YOLO and “lambo or homeless” mindset. Really, it’s “if you’re not mega rich overnight…what’s the point?” This can be bad.
The only way you get to “lambo” in a short period of time is by taking a lot of concentrated risk and having it pay off. Of course taking risks is important in investing, but it’s not enough to simply take risks. You have to take good risks. Fortune does not favor the bold. Just because you do something risky does not mean your probability of success goes up. In fact, it could go down!
So, why do so many people have this go-large-or-go-home mindset? Here’s what I think is happening: There is some increasingly high minimum threshold many think you need to meet to be considered “successful.” And this threshold is influenced by our constant comparisons to unrealistic ideals. If that’s the case, then taking more risk can increase your probability of “success” because extreme outcomes are more likely when you take big risks.
When you’re in a situation with a binary outcome and “success” is far away, you want volatility! The volatility gives you a chance! This is why you go for it on fourth down if you’re losing late in the fourth quarter.
I think that the unrealistic comparison culture we live in is potentially creating a binary definition of financial success for many people. Unfortunately, this is constantly reinforced by clickbait articles with stories about the 30-year old that went from intern to millionaire in five years, the five things billionaires do that the average person doesn’t, etc. But these people are the exceptions, and oftentimes, there’s a catch (i.e. inheritance, nepotism, some unrepeatable lucky outcome, etc.).
In my opinion, this constant comparison is influencing some people to take stupid risks in an attempt to hit that threshold of “success.” They’re putting it all on red because they need the volatility to give them a chance of turning into an overnight millionaire.
Investing in a diversified way and compounding returns over long periods of time just isn’t sexy enough to get people to the level of TikTok-able wealth they want. Hence the increased demand for option trading, gambling, etc.
Lottery-like payoffs are seductive. The math doesn’t work…but it might work for you, someone has to win! This is well documented by research. In the stock market, “lottery” stocks have been extensively researched from multiple angles. The empirical fact is that stocks with lottery like characteristics have low returns on average. Playing the lottery is a negative expected value proposition. YOLOing your hard earned money into “plays” is just playing the lottery with more steps. Don’t do it, but if you must, sequester it to a small (<5%) portion of your portfolio. Speculation is in human nature. It’s exhilarating, I get it. I’m not here to be the fun police. But I’ve seen “fun” turn to devastation too many times not to warn about it.
One of investors’ best weapons is patience. If you can be more patient than others, that’s a behavioral advantage you can use. For example, the vast majority of Warren Buffet’s wealth came to him after his 50th birthday because of the power of compounding returns.
I worry that too many people are blowing themselves up in pursuit of some unrealistic level of wealth that they view as minimally necessary for a happy life. So what’s my advice? Do yourself a favor and figure out what you really want and need to live a happy life. Do some serious introspection. Don’t rely on the images of success fed to you algorithmically. You will inevitably compare yourself to frankly unachievable ideals and as Teddy Roosevelt is purported to have said, “comparison is the thief of joy.”
Things we’re digging:
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