How Can We Simplify Investing?
Losing weight doesn’t have to be complicated, in fact it isn’t. We either consume fewer calories, burn more calories with exercise, or do both. But we’d rather search for a magic pill to save us from the day-to-day grind of simply doing the work. The majority of weight loss problems are caused by impatience and insecurity. The solutions can often be reduced to a simple calculation on the back of a napkin. However, we expect the results to reflect immediately. If we can lose 0.2kg today, and chances are we can, we want to multiply that result into a week. If we repeat what we did today for a week, we’ll lose a total of 1.4kg.
The thing is — growth isn’t linear.
The numbers will fluctuate and don’t make sense on certain days. For starters, muscle and fat weighs the same, but muscle has a higher metabolic rate than fat. Your weight might be stagnant, but you’re simply converting fat to muscle which allows you to burn more calories at rest in the long run. Instead of losing 1.4kg for the week, we end up losing 0.5kg and we start losing our minds. We start to lose faith in the system, because it didn’t hit our goal. The truth is we should stretch out the period and measure weight loss in a longer timeframe.
It is that simple, but many of us are unwilling to wait 3–6 months to see the results.
Financial success works the same way. Investing requires patience and discipline, however it attracts the impatient and impulsive. If we’re as impatient about gardening as we are about investing, it looks something like this: we plant some seeds in our backyard and we check back three hours later. Nothing happened. We dig the seeds up and replants them. We check back five hours later. Still nothing. We dig the seeds up and replants them. This time, we shower them with an extra splash of water and soil nutrients. We let it rest and check back a week later. There is still not an apple tree in our backyard. Similarly, we start to lose faith in the system, because it didn’t hit our goal. It didn’t hit our desired timeframe.
As a result, we give up.
We’re inclined to replace patience with fancier math and techniques. Furthermore, we tend to take on unnecessary risks to shorten the timeframe of success. We become the ones complicating things. We become the culprit for making things complicated. Our attraction to complexity catalysed by impatience distorts the way we approach simple solutions. Let’s keep things simple. Let’s explain things the way it can actually be understood.
How to Explain Market Volatility?
Imagine you grab a million random people from around the world and put them in a basket everyday. You look into the basket and observe that 51% of them are in a good mood and 49% of them are in a bad mood today. You look into the basket the next day and realised it is the opposite. Other days, you discover that 12% of people are pissed off for no valid reason. This is market volatility reflected as numbers on a day-to-day basis.
How to Explain Risk?
You’re building a bridge. The bridge is meant to carry only 1 person at any point in time. Let’s assume the heaviest person in the world is 200kg. You design the bridge to hold a maximum weight of 201kg. You put up a gigantic sign that says “ONLY ONE PERSON IS ALLOWED TO CROSS THE BRIDGE AT ANY GIVEN MOMENT” followed by an even larger exclamation mark. You assume the bridge is safe, until the heaviest person in the world is crossing the bridge midway with his golden retriever happily chasing after him. You fail to account for the dog. The number of times we laugh it off with “What are the chances this will happen?” is the risk we can’t afford to take.
How to Explain IPOs (Initial Public Offering) / A New Coin listing?
A new movie is coming out. You found the trailer on Youtube and it looks awesome. Everyone is talking about it and can’t wait to see it on opening night. It is difficult to book an online reservation and the physical queue is probably really long too. You can choose to wait a few weeks and see the same movie. This time, there isn’t as much crowd and chances are there are better seats in the theater. As you watch more movies, you soon realise that there are very few movies with its hype and trailer being as good or fare even better than the movie itself.
There are no points being awarded for difficulty or complexity. On some level, we all understand that simplicity is the ultimate form of sophistication. Simple explanation and strategies can lead to outstanding returns. Often, we lack not the method to succeed, but the patience for success.
