To become a successful long-term investor, you have to be like a 4-year old. Let me explain.
In 2016, Swiss-born philosopher and author Alain de Botton wrote an opinion piece for The New York Times titled, “Why You Will Marry the Wrong Person”. Naturally this title ruffled a few feathers, and sparked a lot of controversy in the comments from people who disagreed.
I came across a talk de Botton gave in a YouTube video published in 2017 where he further explained the article. There were a number of fantastic quotes that could have related to finance and investing, but I really honed in on one in particular.
When it comes to love, de Botton says we need to reach a point of “true psychological maturity” when we can understand that anyone you love will be some kind of mixture of good and bad.
He backed this up by citing a study done by psychoanalyst Melanie Klein that is now called the Object Relations Theory. In short, the theory states that babies and toddlers don’t realize their mother or father is one person until the age of about 4 years old. Until that point they split the character into two separate characters: the “good” mother and the “bad” mother.
At around 4 years old, the child is then capable to realize that their parent is one person, and that they can simultaneously love them while hating them.
De Botton went onto to say in his talk that there comes a point when every person must say “I love someone AND I hate someone, and that’s okay!” The key to any lasting relationship is realizing this fact.
Wait a second, I thought he said this was about long-term investing? – You right now, probably.
The same thing de Botton argued for finding a lasting relationship with your spouse or significant other, can be argued for finding a lasting relationship between you and your portfolio.
As we know, and have stated many times here at Mullooly Asset Management in the past, market returns do not move in a straight line and can be very lumpy.
If I told you that your portfolio would average 10% a year over the span of three years, would that be acceptable? I’m going to assume that you said yes.
Well what if I told you that you would make +40% the first year, -10% the second year, and 0% the third year? That averages out to 10% per year, but it sure as heck wasn’t a smooth ride.
In the same vein as the 2 year old child who thinks there is a “good” mother and a “bad” mother, you would most likely think you had a “good” portfolio and a “bad” portfolio.
Being able to understand that a successful portfolio will have good AND bad years is paramount to any other investing concept out there.
Is it easy to come to grips with? No.
Right now people are staring the “bad” portfolio in the face, and some want to jump ship. Those who don’t jump ship and “love” their portfolio the way it is will have much higher chances of success in the long term.
Just a like a 4-year old learns to love their parent as one parent: BOTH the good and bad parent, you need to learn to love your portfolio as one portfolio: BOTH the good and bad portfolio.
Curious as to what some of the other comparisons to finance I pulled from de Botton’s talk about marriage were? Here are a couple:
- De Botton says that love is a skill, and that we all would disagree with him if he told us we needed to go to a school for love. Society emphasizes “following your heart” and just going with their gut feeling. With finance, investors have a hard time admitting when they don’t know what they’re doing. Just following your feelings and being impulsive is a great way to make mistakes in the market, and apparently in love too.
- De Botton argues that all of us most definitely will NOT find the “right” person for us, but all of us will most definitely find “good enough”. I can’t even count the amount of times I’ve said “don’t let perfect get in the way of good enough” when referring to an investment portfolio.
I linked to the video above if you’d like to check out the whole thing. It’s 22 minutes of super interesting stuff!
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