Jiddu Krishnamurti spent his life giving spiritual talks. As he got older, he became more candid. In one famous moment, he asked the audience point-blank if they wanted to know his secret.
He whispered, "You see, I don't mind what happens."
I've spent the last five years as an investor trying to do the same. I've made a concerted attempt to care less about what happens in the investment world. I still pay attention, of course. It's my job. But I'm far more selective about what I read. It has helped more than I could have possibly imagined.
Caring gives a false impression that what you're thinking about is important. If I pay attention to six-monthly earnings, shouldn't I be a better investor? If I check what the market did this morning, am I not more informed?
Common sense tells you yes. But it's wrong. More often than not, not caring is the way to go.
My journey started with a realisation that the more media investors paid attention to, the worse they did. The more they analysed, the more decisions they had to make. The more decisions they made, the more chances they had at being wrong, letting their emotions take over, and doing something regrettable. Find someone who has mastered personal finance, and you'll find someone with a pathological ability to not give a damn.
There are so few exceptions to this rule it's astounding. Where is the evidence that paying attention to every last piece of market news makes you a better investor? I've looked. I can't find it.
So I stopped caring about a few things.
1. Finding the perfect portfolio
Investors crunch numbers to find the perfect number of international stocks they should own at a certain age, the precise amount they should allocate to bonds, and exactly when they should cut back on stocks when historical models show they're overvalued.
Here's the truth: None of these models are perfect, so back-of-the-envelope, "good enough" estimations will usually do just fine.
Harry Markowitz won the Nobel Prize for creating modern portfolio theory, a formula that precisely calculates the optimal asset allocation to maximise return at a given level of risk.
With his own money, he found this too complicated.
"I visualised my grief if the stock market went way up and I wasn't in it — or if it went way down and I was completely in it," Markowitz once said. "So I split my contributions 50/50 between stocks and bonds."
Good enough.
2. Six-monthly earnings
The median company in the US S&P 500 was founded in 1949. So it's 66 years old. Therefore quarterly earnings in the US tell you what happened in the last 90 days, or 0.3%, of its life. The odds that ground-breaking developments will occur in such a short period of time are slim, and they approach zero as time goes on. It's the equivalent of judging how your day is going by analysing the last four minutes.
Amazon.com CEO Jeff Bezos says he runs his life on a "regret minimisation" framework. His goal is to look back at age 80 and regret as few things as possible.
The same is true here in Australia. Most companies have six-monthly earnings reports, but the context is identical… and the timeframes similarly tiny. So I choose not to care.
3. Wondering why the market fell
The ASX rose almost 1.0% last Thursday. Why?
Lots of reasons were given. A strong lead from Wall Street. Investor confidence. Commodities. The RBA.
"Random, unidentified marginal sellers were a little bit more motivated than random, unidentified marginal buyers" wasn't mentioned. But it's the best explanation for why stocks rose. The same goes for almost every day.
4. Getting other investors to agree with me
Let's say your weather app says it'll be 24 and sunny tomorrow, and mine says it will be 22 and overcast.
Would we argue about this? Go on TV and duke it out? Call each other names?
Of course not. We'd say, "Ah, let's just see what happens. Probably doesn't matter either way."
Investors don't think this way. The fights people get into about whose forecast is right are off the charts.
Unlike weather, money is an emotional subject. And unlike tomorrow's temperature, our investment decisions are in our control. So many investors get offended when others disagree with them. But once you realise that; your views are just as biased as everyone else's and there's a good chance you're both wrong, you stop seeing any reason to argue. Debate, sure. But life's too short to argue.
