Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
Support MFO
Donate through PayPal
Carl Richards: Finding the Right Balance of Time And Money: Time=Money / Money=Time
Countries inflate and deflate money, but time is a constant. Money is a relative value instrument that is used to substitute for time/labor. Time spent can never be refunded. Money spent is always relative and as we have learned it can be created out of thin, digital air.
The pace at which I spend time and money defines much more about my decision making and values. One of the hardest lesson for me has been trying to control the pace at which money disappears...too much month at the end of the money!
I think the trade-off is a bit more than time vs. money. What we have is a limited amount of resources, and both time and money are two of our biggest resources. I think, and this is where I think the real complexity lies, that what we all try to "procure" with our limited resources, all of them, is pleasure. So yes, when we pay the higher price for a direct flight and save time, we've said something about the relative value of our time and money. But it's also true that some people just hate flying, so the "pleasure" they get from only having to take-off and land once, or from spending less time on planes is worth the extra cost. Of course if there's a shortage of money then that same person might choose the connecting flight anyway, but that's because the pleasure they get in the form of being able to pay for other things like a house or a car is greater than the displeasure they suffer from taking a less expensive connecting flight. The person sitting next to them on those connecting flights might love flying or might have a bucket list to set foot in every state during their life.
I believe we all go through life trying to maximize the pleasure we're able to experience with our limited resources and I think that applies to investing as well. We read over and over how often people buy high and sell low, which would appear to waste money and bring displeasure. Unfortunately I think the driver may be that most people are too focused on the pleasure of the moment (aka instant gratification) rather than longer term pleasure. I buy high because I see everyone else increasing their wealth and I want some of the same pleasure, via increased resources, as they have. Not only that, but being patient, waiting for the correction, creates stress now as I worry I'll never have the chance and I'll miss out on the pleasure others have obtained. When I start losing money then I suffer displeasure and the fear that if I don't sell it could get much worse.
So when Warren Buffett says you don't have to be a genius to do well investing and that temperament is far more important, this is what I think he's talking about. All of those here who started saving when they were young and gave up a bit of pleasure all along the way are now rewarded with greater resources later in life when they also tend to have more time to enjoy those resources. And this is why passive investing ends up making sense for so many people. If you're temperament will on average provide below average results, then a passive approach, to the extent it offsets your temperament, not only provides better returns but in many if not most cases I would suggest it delivers more short-term pleasure as well as more long-term pleasure, a win-win. Unfortunately, not for me, as I derive a lot of pleasure from the research, the decision making, the "chance" of achieving above average returns, and I feel much less displeasure from volatility and bad timing than most people do. Essentially I'm willing to run the risk of giving up both time and money for the pleasure of playing the game in a more active way.
One way to view it: When you're young ... you've likely got lots of time, but little money. When you're old ... you're likely to have plenty of money, but little time. (There are exceptions.)
Comments
The pace at which I spend time and money defines much more about my decision making and values. One of the hardest lesson for me has been trying to control the pace at which money disappears...too much month at the end of the money!
I believe we all go through life trying to maximize the pleasure we're able to experience with our limited resources and I think that applies to investing as well. We read over and over how often people buy high and sell low, which would appear to waste money and bring displeasure. Unfortunately I think the driver may be that most people are too focused on the pleasure of the moment (aka instant gratification) rather than longer term pleasure. I buy high because I see everyone else increasing their wealth and I want some of the same pleasure, via increased resources, as they have. Not only that, but being patient, waiting for the correction, creates stress now as I worry I'll never have the chance and I'll miss out on the pleasure others have obtained. When I start losing money then I suffer displeasure and the fear that if I don't sell it could get much worse.
So when Warren Buffett says you don't have to be a genius to do well investing and that temperament is far more important, this is what I think he's talking about. All of those here who started saving when they were young and gave up a bit of pleasure all along the way are now rewarded with greater resources later in life when they also tend to have more time to enjoy those resources. And this is why passive investing ends up making sense for so many people. If you're temperament will on average provide below average results, then a passive approach, to the extent it offsets your temperament, not only provides better returns but in many if not most cases I would suggest it delivers more short-term pleasure as well as more long-term pleasure, a win-win. Unfortunately, not for me, as I derive a lot of pleasure from the research, the decision making, the "chance" of achieving above average returns, and I feel much less displeasure from volatility and bad timing than most people do. Essentially I'm willing to run the risk of giving up both time and money for the pleasure of playing the game in a more active way.
Regards- OJ
When you're young ... you've likely got lots of time, but little money.
When you're old ... you're likely to have plenty of money, but little time.
(There are exceptions.)