My goal today is to applaud you Velociraptors in your mission here, but to also point out some important facts from the other side.
Thoughts on active investing
Investing is a combination of luck and skill. I’m not saying anything new, here. You already know this. But the idea I want to emphasize is that it takes a lot of work to be truly skilled. And it takes a lot of knowledge to be truly skilled. The Lizard King puts in a lot of work and has built a huge depth of knowledge. He knows what he’s doing, and he knows the risks involved.
Even with that experience, the King’s results are still a mixed bag. Some investments work exactly as hoped. Others move in unexpected ways. And there are plenty of occasions–both good and bad–when one has to shrug and say, “Man, I didn’t anticipate that.”
Not much is guaranteed out there in the markets, so you better know what you’re getting into. There are thousands and thousands of other investors, and they’re competing for the same margins that you are. It’s a fight! And in any fight, you’ve got a couple options. You can throw hay-makers and hope you get a knock-out connection. High risk, high reward. Or, you can take calculated risks, fight for small improvements in position, know when to strike and when to dodge.
Are you throwing hay-makers? Or are you fighting intelligently? Any good predator knows that its prey can fight back. That’s the life of a velociraptor.
Oh, you need another analogy? Hit it, Kenny!
Gambling, too, is a mix of skill and luck. If you sit down at the table and you can’t figure out who the sucker is…well, then the sucker is probablyyou. The markets can be just as unforgiving. “A fool and his money are soon parted,” they say. So ask yourself some honest questions: have you put in enough work to no longer be a fool? It’s harder than it sounds…
Understand your risk posture. Leave yourself some outs, just in case your attack move gets rebuffed. I like how the Lizard King frequently describes the many ways in which he hedges his bets. Sure, the potential rewards decrease. But the likelihood of catastrophic failure is also greatly diminished. That’s some Best Interest thinking that I can get on board with.
What dummies like Jesse do
Me? I do not have the Lizard King’s skills. I have not put in the work, and I have not developed the same depth of knowledge about investing; the King deserves credit for his work. If I joined you folks today, I’d be the fool. I’d get punched in the face, hang on to my losing hand, and then get eaten by a T-Rex. Steven Tyler would sing my investing eulogy and start grinding on the microphone stand. It’d be a mess.
So instead, I’ve focused my efforts on “How to Invest for Dummies.” Yes, I’m a lame passive guy. I put my money into low-cost index funds. I get none of the alpha that many of you get. But by the same coin, I keep my costs and level-of-effort very low. I’m a simple man–nothing against Lynyrd, I just thought I’d share this lesser-known cover.
My passive strategy is built around the Lazy Portfolio. For those unfamiliar, a Lazy Portfolio is a collection of index funds that are diversified across a few different asset classes. To break that definition down a little bit further:
Index fund: a mutual fund that is designed to track a certain segment of the market. Example: a large-cap index fund might be designed to carry all of the businesses in the S&P 500, and thus would perform almost exactly the same as the S&P 500
Asset classes: a grouping of investments that are similar and usually abide by the same regulations.Examples: stocks, bonds, real estate, commodities, etc.
So, back to the Lazy Portfolio. My investment money is spread across four different index funds. One tracks large-cap U.S. stocks. Another for small- and medium-cap U.S. stocks. And the final two track international stocks and bonds.
Your finances outside of investing
Whether you want to be a velociraptor or you plan on folding your hand, I think the Lizard King and I probably agree on the importance of having you personal finances in check. That’s mainly what I focus my writing on. In fact, I’ve called on the immortal words of Ted Nugent when imploring my readers to get a stranglehold on their budgets.
I encourage my readers to budget and track every single dollar in their financial lives. This holistic level of measurement enables them an unprecedented ability to manage their finances. It’s the old Peter Drucker saying, “You can’t manage what you don’t measure.” By tracking every single dollar, you give yourself a chance at honest reflection. Where is your money going? Where is there waste? How did you expectations line up with true reality?
This transparency also extends to spending habits. In my own life, I’ve noticed recurring patterns of impulse spending. There’s a little voice in my head–my “BUY THAT!” voice–that gets extremely loud whenever I see a cool hiking gadget or an interesting new book. If you reflect, you’ll probably realize that you have a BUY THAT! voice too.
Over time, I’ve learned to calm and mute my BUY THAT! voice. I’ve developed some habits to think before I spend, and to ensure that I’m not breaking my budget. It’s led to meaningful changes in my bank account and my overall fulfillment.
Thanks again to the Lizard King for letting me write here. I wish you all the best in your investing futures. Participating in the market is certainly a lot of fun, and potentially fruitful!
If you want to shred my advice or my musical taste, fire away. Show me those raptor teeth! Leave it here in the comments section or drop me a line at the Best Interest.