An acquaintance relishes trumpeting his large bet on bitcoin and intent to hold on for dear life to a group of us repeatedly via text. He insists it demonstrates his investing prowess.
For proof of his skill, he holds up the considerable increase in value he can demonstrate since he initially invested. When I ask to understand why he invested when he did, he does not bring up bitcoin as an uncorrelated asset that is a component of multiple assets working together in his portfolio. He does not cite how one can harness that volatility.
Instead, he mentions his belief that blockchain will change the world (it may) and reverts to his enumerating his considerable profit to date, were he to liquidate his holdings (he has not intention).
I do not begrudge him his successful investing, and I'm glad it's brought him closer to reaching his financial goals.
I evaluate my own investments based on process rather than outcome.
- Have I considered the downside risk and mitigate against it?
- Have I assumed sufficient risk to reach my goals and overcome the eroding effects of inflation?
- Is my investing plan designed to achieve my objectives in both times of feast and famine?
- If it fails, do I have a plan B, plan C, etc (work longer, be flexible in reducing retirement spending)?
- Have I reduced to a bare minimum the uncompensated risks in my portfolio?
- Have I committed to an asset allocation along the efficient frontier, where I squeeze the most return for each degree of risk I assume?
- Have I reduced the potential to self-sabotage by automating my investments and mitigating those behavioral economics / psychological elements that might undermine my own success?
- Have I minimized the need to outperform the market in favor of accepting market returns?
- Have I minimized fees within reason?
- Have I made the effort to gather data and make the most informed decision possible at the time?
- Have I been careful to take risk off the table when it's no longer necessary?
- Am I sticking to my basic plan and resisting the urge to continually tweak it?
- Am I continuing to educate myself about investing so I understand the life cycle implications today's decisions will have on tomorrow?
I live in an area where plenty of successful entrepreneurs, professionals and business folks tout their particular path to success.
My goal is not to get rich like they are; it's to not die poor (as Bill Bernstein poetically puts it).
Are you process- or outcomes-oriented in your approach to investing?