I swear this is not turning into a science column, but the solutions to our investing issues, time and time again, are tuning out to be based in physics, in nature, and in us. They do not lie at the bottom of a glossy brochure, or in hedge funds, or foreign exchange schemes, or fancy trading.
For some, select founders, a lucky few, the fairy tale does come true from going all in on one or two stocks. This percentage of our population is infinitesimally small, but their voices are large and loud, and the way they tell it, we should all aspire to similar greatness. I say, "Nah". I say "Unlikely". I say "Do what you do best".
The investing playbook for us guys and dolls in the street has been worked out for a long time, ladies and gentlemen.
Active managers in the village will disagree, obviously, but hang on, listen, what's that?! Hear the sound of their bonuses paying the mortgage!
So, why, if the path of investing is so clear, do we careen off course? Well, you are wired for three things only in life; pleasure seeking, pain avoidance and energy conservation. The reason sausage rolls are more tasty than salad is that they hit your dopamine receptors 50 times harder.
The reason the chicken crossed the road was to avoid the fangs of the fox, (or maybe they're all vegans over there so he feels a margin of safety). The reason the cheetah chases the closest sick antelope, or that you take the nearest taxi, is to save effort. If you combine these traits into our world of shares, you begin to see why a speculative stock seems so attractive, (huge, easy gains that you never had to lift a finger to achieve, you can buy a Ferrari). Or why people sell at the bottom, (holy moly I can't take any more agony).
Although the sharemarket is very real, we do not usually feel it physically, unlike our ancestors around the campfire stabbing a woolly mammoth, and this confuses our highly tuned neural circuits even further.
It allows us to suspend belief. The natural success forces that kept us alive and kicking get twisted around in these situations. Good news! You can guide these forces to your better success with a bit of practice and less of a focus on absolute winning and losing. Using a simple Share Scorecard, for example, you can be well on your way to the investing life you deserve. Tune in for more on Scorecarding things next week.
• Caroline Ritchie is a former AFA, sharebroker and portfolio manager. She runs Investment Stuff, a sharemarket based investment coaching service. Visit her at www.investmentstuff.co.nz. This column is not personalised financial advice.
