STREET DOGS

From Morgan Housel at Collaborative Fund:

We rarely recognise that most investment debates — debates that literally make markets — are just a reflection of people making different decisions not because they disagree with each other but because they view investing with a different set of priorities.

If you’re trying to maximise risk-adjusted returns, you have no idea why someone would buy a 10-year treasury bond with a 2% interest rate. Trading 3x leveraged inverse exchange-traded funds is financial suicide for some and a cool game for others. Long-term investors who criticise day traders bet on sport because it’s fun. People who scream at you for overallocating into real estate investment trusts buy sixbathroom homes for their fourperson family.

Two rational people the same age with the same finances may come to totally different conclusions about what’s right for them, just as two people with the same cancer can pick radically different treatments. And just as medical textbooks can’t summarise those decisions, finance textbooks can’t either. This isn’t about differences in risk tolerance.

People who work in finance underestimate that watching markets go up and down isn’t intellectually stimulating for most regular people. It’s a burden. Even if they can technically stomach investment risk, the added complexity robs bandwidth from other stuff they’d rather be doing.

Claiming your investment product is entertaining is usually the refuge of those who can’t point to performance. But it’s crazy to assume that many people don’t find investing incredibly entertaining. So much so that they rationally do nutty stuff regardless of what it does to their returns.

Everyone giving investing advice — or even just sharing investing opinions — should keep top of mind how emotional money is and how different people are.