Decisions, Decisions (Core Post No 1)

What a children’s book series can teach about making investment choices

The first thing we need to address to achieve the financial mastery we discussed in our Start Here post is the topic of decisions. Nothing else we’re going to cover matters if it doesn’t relate to making better, meaningful decisions.

The Financial Mastery Toolbox

In Stephen King’s book On Writing: A Memoir of the Craft, he writes:

Good writing consists of mastering the fundamentals (vocabulary, grammar, the elements of style) and then filling the third level of your toolbox with the right instruments.

In a similar fashion, in our first four core posts, we're going to lay out our toolbox for making smart investment decisions—the key to our more money; less stress promise.

By the way, what we’re covering in these initial posts can be applied to all aspects of your life. The next three posts will cover Context, Perspective, and Questions. We’ll then get to investment-specific posts.

To explore the topic of decisions, we’re going to head to the Himalayas in a quest to find the Abominal Snowman.

Choose Your Own Adventure

The Choose Your Own Adventure series of gamebooks was launched in the 1970s. At various points in the story, the reader chooses what to do next and is directed to a page based on their decision.

In Choose Your Own Adventure 1: The Abominable Snowman, you are on a quest to find the mythical Yeti, rumored to be somewhere in the Himalayas. At one point in the story, you are prompted with the following:

Some things just happen by chance. This was one of them. You ask, “Where should we head? Annapurna or the Lhotse-Everest region? What do you think, Sangee?”

“Many have seen Yeti prints near Everest, but there is the region near Annapurna and Machapuhhre (Fish Tail Mountain) where we could have good luck. The Everest region has been more fully explored, Annapurna is less well known.”

If you choose the Annapurna region, turn to page 50.

If you choose the Everest region, turn to page 48.

What does this have to do with investing?

Simply this: your own life is essentially a real-world version of Choose Your Own Adventure. And much of how it plays out depends on how you make decisions about money, including investing.

If you look back on your story so far, you’ll undoubtedly reflect on good decisions, great decisions, and some decisions you regret.

If you want to put a positive spin on the latter, even the decisions that didn’t work out can be learning experiences leading to better decisions in the future.

Considering Your Options

An advantage to the Choose Your Own Adventure books is that you’re always presented with options. In real life, we often choose the first thing that occurs to us without considering other potential choices. Frequently, the best choice is what is referred to as the second right answer.

Alternatively, we can feel overwhelmed by too many options—a problem aptly captured by the following lyric in the Rush song Freewill:

If you choose not to decide, you still have made a choice.

The key is to pause to consider your options without putting too much pressure on yourself to be right all the time. Being right most of the time is usually good enough.

With regard to investment decisions, you’ll need to learn to determine which of the things you hear about the markets on a daily basis are relevant and which you can ignore. Basically, it comes down to whether something you hear might change any of your decisions about your long-term investment strategy.

Once you reach the level of financial mastery we’re aiming for, it will become clear that most of what you hear on a daily basis about the markets is irrelevant for the long-term investor because it doesn’t affect any important decisions.

A common mistake many investors make is to overreact to short-term market movements and expert predictions. What happens in the markets over the next 20 years is far more important than what happens over the next year. Trying to time the markets is challenging at best and can cost you significant amounts of money over time.

We’ll explain this fully in future posts. For now, try pausing to think whether some bit of news (such as an upcoming election, wars, inflation, etc.) might change any long-term investment decisions. If it doesn’t—which these examples do NOT—you can ignore it (unless you enjoy short-term trading/gambling).

As a hint, over 90% of what you hear about investing is irrelevant.

Stuart & Sharon