Only Fools Rush In
“Nothing so undermines your financial judgement as the sight of your neighbour getting rich.” JP Morgan
We are all in a rush. A rush to grow up, a rush for that new promotion, a rush to get on the property ladder. Our innate fear of falling behind has led to many of us seeking shortcuts to fast-track all of life’s milestones.
Nowhere is this instinctive human condition more prevalent than in personal finance. Everyone wants to get rich quick.
When I speak to friends about investing, the conversation typically goes something like this.
‘Mike, nobody cares about your long-term investing approach; just tell me the name of the stock that will make me a millionaire by the end of next week.’
We are all wired to try and find the easiest route, the path of least resistance. Every day, thousands of people opt to play the national lotto to be in with a 1 in 10,737,573 chance of winning it big. Not exactly favourable odds, but there are few get-rich schemes more instantaneously gratifying. Hence our never-ending obsession with picking those 6 elusive numbers despite the unlikely probability.
This rush to get rich quick can often result in perfectly rational individuals doing very irrational things in a bid to get ahead. Forgoing tried and tested means of building wealth, opting to take a chance on a faint promise of short-term riches instead.
Unfortunately, the boring truth is, in investing, patience is a virtue. What better way to reinforce this point than to regale you with a cautionary tale from the most successful investor of all time.
Everyone knows the investing duo of Warren Buffett and Charlie Munger. With a combined net worth of over $100 billion, they are a force to be reckoned with. But 40 years ago, there was a third member, Rick Guerin. The three made investments together. Then Rick disappeared while Warren and Charlie became the most famous investors of all time.
A few years ago, Buffett was asked, ‘what happened to Rick?’
Buffett explained how Rick was highly leveraged and got hit with margin calls in the 1970s bear market.
“Charlie and I always knew that we would become incredibly wealthy. We were not in a hurry to get wealthy; we knew it would happen. Rick was just as smart as us, but he was in a hurry"
Given the level of growth and volatility in markets over the last year, it is easy to get caught up in all the skyrocketing returns. I get it; seeing a seemingly endless list of companies double and triple in price will ensure that even the most risk-averse investor wants to get in on the action.
With that said, now is not the time to abandon your rationality simply because you know a guy who knows a guy who made millions from Tesla and Bitcoin. Remember, it's not about outsmarting the market; it's about positioning yourself, so you participate in the rising tides of markets.
My Advice: Don't rush it, don't force it. While it's easy to get drawn in by the high-flying outliers and your neighbour's new Merc, staying focused on your long-term wealth goals instead of Gambling the mortgage on ''the next big thing'' is the preferred approach. Just because you're not a millionaire yet doesn't mean your investment plan isn't working.
Stay diversified, don't borrow to buy stocks and stay focused on the long term.