Inviting Ignorance

I’m going to make myself ignorant, as much as possible, concerning my investment portfolio. This may surprise many, but it probably should not. I’m going to stop looking at my portfolio every week, or every month. I’ll look at it quarterly and try to avoid doing that as well. I’m inviting ignorance into my life.

There is an anecdote in Nassim Nicholas Taleb’s “Fooled by Randomness” where he talks about an individual who looks often at his portfolio and is disheartened by the daily or weekly fluctuations. He speaks about how that investor would feel much less pain, and possibly even joy, if they chose to not look at the portfolio but a few times a year or even not at all. This jives with the idea explained in Richard Thaler’s “Misbehaving” that a loss is felt twice as deeply as a similar sized gain would be. Work by Amos Tversky and Daniel Kahneman pioneered this idea and reinforced it with multiple studies on gains,┬álosses, and risk aversion.

If I give you $1,000 you will be happy, if I take away $1,000 I bet you would be much more upset than you were happy. Anecdotally it makes sense and we all have examples from our daily lives to verify this. If the individual in Mr. Taleb’s anecdote would have simply taken a few steps back and seen the longer-term portfolio performance they would be much more pleased. After all, 70% of the time markets are in an upward trend reaching higher highs. Of course, markets “correct” and have drawdowns as well, but those are not as frequent as shown by the data available.

This is an easy approach to take when markets are hitting all time highs what seems like every other day. Things are going great in the markets, and besides some hedge funds it seems like everyone is making money.

Back in 2007/2008/2009 my grandpa and grandma were retired and living off their savings and investments. We all know what happens next. The markets blew up, and 401(k)s became 200.5s. My grandpa panicked, being a child of the depression not aiding in his calm, and sold everything. He was keyed into the markets and understood things well, he wasn’t ignorant by any means. He rotated what money was left into an annuity, rolling CDs of various lengths, and cash. Today he is gone, and my grandmother is living with those decisions. After working hard her whole life, raising kids, supporting a small business they owned together, she is all but broke. Social Security, the bullshit annuity, and her CDs aren’t beating inflation and she is left without enough money to heat her home in the winter, relying on her children. Its absolutely painful to witness.

What would the case be had my grandpa just been ignorant and let his money ride it out? I can’t say for sure because I don’t know what exactly he owned in his portfolio, but for those of you who rode the market out you know what the answer probably is.

I know I’m an idiot, and a human being, and emotions drive my decisions. Knowing this, and knowing how markets go up most of the time, why would I want to watch my portfolio like a hawk? Every company I own was chosen because it is a good company with good management, me checking won’t change any of that. If something gets real bad I’m sure I’ll hear about it, and then maybe I’ll check. But until then I’ll just find the next company I want to own and enjoy my life. In 20, 30, 40 years I am confident my invested money will be there and it will be more than what it is today.

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