How to Make a Great Investment Look Bad

In an effort to impersonate an adult, I’ve been saving and investing my money earned from teaching seminars for some time now. If you’ve ever investing in any publicly traded companies, currencies, or commodities, you know how tricky the emotional attachment to your investment can be. Today, more than ever, the speed in which we get information and the frequency we get information regarding these trades is just a click away. Hell, if you have an iPhone, you don’t even need to download an app to have instant access to the market. I find myself checking my investments far too often and I know better.

I say I know better, because the frequency in which you check in with an investment can directly affect your experience and interpretation of the quality of the investment. Trader, writer, and philosopher, Nassim Taleb, shined light on this for me years ago. To explain, let’s take a winner stock at random like Himax Technologies (HIMX). HIMX is up 500% since 2013. In fact, if you bought on October 26, 2012 you’d pay $1.84/share. Today those shares are worth more the $9.00/share. If this seems like something to celebrate, you’d be exactly right.

Consider that if you checked the stock price in October 2012 and didn’t look again until today. While you might have died of impatience along the way, you’d surely be popping some champagne when you got the news. Now, what if you checked the price of your stock once every quarter? The way HIMX trended, you would have experienced more happy quarters than quarters that were down, but not by much. This means our 500% winner brought both good news or bad news each check-in. Now, even for a winning stock like this one, if you increased the frequency of your inquiry until you checked the price every minute on the minute since 2012, you’d have almost fifty percent positive feedback and fifty percent negative feedback based on the micro fluctuations in price. Instantly, then, you would have turned a life changing investment into a break even, nail biting toss up.

Now, for a slam dunk winner stock, like this one, you could possibly get the wrong picture about the stock’s trajectory simply by checking your damn phone too often to see how it’s doing. Fitness is similar. If you finished each training week with a test of your one rep max bench press, you might come to the incorrect conclusion that you’re on the wrong path. Rather, if you trust your training and let it run its course, you very well could look up after several years and have yourself a massive return on your bench press one rep max.

Humans don’t manage predictions of the future well, in part, because of habits like this. Even in the most successful outcomes, like HIMX, progress is never linear. Don’t be duped by the needle jumping up and down on the graph. You’re trending up, I promise. Keep showing up.

 

Logan Gelbrich

@functionalcoach