49: Optimal Is Relative; Running Your Own Race; Selling It All
You do you. (And be happier for it.)
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You Do You
I feel obligated to start by saying nothing here is investment advice. These are just the random musings of a particular day.
A friend of mine recently told me he moved all of his retirement accounts to cash1. The recent market swings were just too much for him. Now, this friend is in his 60s, has other investments, is comfortably retired, and isn’t a nervous investor. But he told me he felt a weight was off his shoulders. It got me thinking: the optimal investment strategy is relative.
Everyone has their own investment calculus. Yes, there are the typical classifications of risk-averse investor, aggressive investor, etc., each with their own “optimal” investment strategies. I’m talking about something else.
I’m talking about your own psychology and how that interplays with your investment strategy. And even beyond that to your peace of mind. How do you quantify my friend’s greater enjoyment of life after making his move to cash? I’m not close enough to academic research to know if this has been quantified or not. It probably has.
My point is that everyone is different. It’s okay to hold more cash if that makes you feel better. Or invest 100% all the time because that makes more sense to you.
Getting more granular, perhaps you have a stock in your portfolio you’ve owned for decades. It’s mature, “boring”, and clearly suboptimal from the standpoint of better alternatives being available to you. Maybe there’s an alternative that’s 100% comparable that comes with a higher return. But you stay put. You think like a business owner and enjoy being partners with a like-minded management team that’s helped you build wealth for your family. In my view, that’s okay.
You set your own investment strategy. Even if you pay someone to manage your capital, you’re still the standard setter. You can set the tone or the culture for those you bring into your circle. Here’s Charlie Munger:
“Someone will always be getting richer faster than you. This is not a tragedy… The idea of caring that someone is making money faster than you are is one of the deadly sins.”
Run your own race.
If you enjoyed this post I’d appreciate you taking a moment to help me spread the word by sharing it. Thank you!
Stay rational! —Adam
P.S. Cover Photo by Andrea Leopardi on Unsplash
He chose only his retirement accounts because there were no tax implications.