"Now tell me, what game are you playing?"
I am in this Facebook group about investing, two years ago, everybody was talking about bitcoin, real estate and Airbnb. It seems like these are generational opportunities to make big bucks in a short period of time. While I am sure some people have made significant gains through speculation or through selling courses to teach people how to speculate/get rich fast, many others have incurred substantial losses. I call this the fashion trend of investing, it tends to be short lived, I haven't heard people talking about crypto mining for a while.
I recently read the famous lecture/essay "Acres of Diamonds" by Russell Conwell, the founder of Temple University. The central idea of the work is that one need not look elsewhere for opportunity, achievement, or fortune; the resources to achieve all good things are present in one's own community. This theme is developed by a series of anecdotes, many of which are drawn from Conwell's own experience.
I don't necessarily agree entirely with his perspective. As a first-generation immigrant who arrived in the land of opportunities as a young student and later changed my career in my late twenties, I consider myself incredibly fortunate to have actively pursued opportunities that have led me to my current position. If you are a HENRY (High Earner, Not Rich Yet) now, it's likely because your field is thriving, and you've already discovered your 'diamond.' Concentrate on your current path; there's no need to chase after the next big thing or seek a quick route to wealth.
My experience with market timing and stock picking has been far from successful. As a poor student years ago, I ventured into market speculation and initially experienced what seemed like beginner's luck. However, this soon led to a constant and emotionally taxing need to monitor the market. I spent a considerable amount of time analyzing market trends, macro and micro factors, and reading books on the subject, only to eventually lose not only all my gains but some more. This experience has taught me that the market is not as predictable as one might hope, and I, for one, certainly don’t possess the talent to forecast it, I don't think anyone does. That's why I am not surprised at all to see that Gen Z are actively trading more than any other generations . Based on my observations, these group of people tend to buy in the get rich fast scheme and speculate the market
- The young and poor, they normally don't have much to lose and quick wealth is very appealing. Social media plays a important role here too.
- The middle aged and wearied, when they start to question their achievements and life choices, or when they are tired of their current job/profession and entertaining the idea of FIRE, they tend to change their risk-taking behavior.
- The old and poor, when they have the "oh shit" moment and realize time is against them, it's normal to have a desire to 'catch up' or make significant financial gains quickly to compensate for perceived inadequacies or past mistakes.
- The gamblers, speculating can trigger the release of dopamine, same as gambling, that's highly addicting.
Larry Burkett once said, "Get-rich-quick thinking leads to three basic errors: (1) Getting involved with things you cannot understand; (2) Risking funds you cannot afford to lose, that is, borrowed funds; and (3) Making hasty decisions. " So I like to do exactly the opposite of these,
1) I invest in myself and my own business which have consistently yield the best return;
2) I maintain an emergency fund sufficient to cover one year of personal expenses and six months of business expenses; These are invested as a US treasury ladder or CD ladder.
3) I invest in low cost index funds for my kids education and our retirement (tax advantaged accounts are fully funded first);
4) I have a written financial plan that I review with my wife quarterly. We follow the plan and do not make major financial decisions without mutual agreement.
Considering even wall street fund mangers struggle to outperform the market, is it worth it for us to try to speculate? According to SPIVA study, over 15 years, a mere of 6.6% actively managed fund outperformed S&P 500. Factoring in the high expense ratios of these funds, the odds of outperforming the market are definitely not in your favor.
| 1 year | 5 years | 10 years | 15 years |
Underperform S&P 500 | 51% | 87% | 91% | 93.4% |
Outperform S&P 500 | 49% | 13% | 9% | 6.6% |
data from spiva scorecard as of 12/31/2022
So what are your goals, strategies, rules, and boundaries, have you found your diamond and what game are you playing?
