Where were you 10 years ago?
What were you doing? Were you thinking about investing then? How confident were you feeling?
I remember 2011 well. Europe’s government debt crisis was in the news.
At the time, I was unblocking the toilets of the financial system (this was before Key Workers were even a thing). I was working in corporate finance & restructuring…helping clean up the mess from the 2008/09 global financial crisis.
At that point, it was not clear to me whether we were gonna make it. As an economy. As a society. As a civilisation. Like a veteran suffering from flashbacks to combat, I had seen the whole banking system come close to collapse and the stockmarket fall 50% peak to trough in 2008/09.
I was even less confident about my own financial situation. Yes, I was approaching the point where The 25x Rule of Thumb was implying that work was optional. But I wasn’t ready mentally. My asset allocation was all wrong. I had gold, too much cash and bonds and my % equity exposure was too low.
And it wasn’t just me. When I ventured online there was no shortage of people proclaiming that THIS IS A SUCKERS RALLY, THESE GAINZ AIN’T REAL, WINTER IS COMING etc etc.
So I only had about 50% of my portfolio in equities. Really, this should have been more like 75% – 90% given my situation and market conditions at the time. With 20:20 hindsight, the FAANG stocks were cheap. They sure didn’t look cheap at the time but the tech giants were growing like weeds and software was eating the world.
So what actually happened from that point in 2011?
We now know that from mid 2011 a global equities index tracker returned +11% per year.
The problem in 2011 was that the bear case sounded smarter.
It always does. Bears get to sound smart and bulls get to be rich.
I wish I’d been more bullish sooner.
Zoom out and go long
To be an investor is an act of optimism. It’s a positive bet that we are gonna make it. That the world is gonna make it.
You invest money today that will make your life better in the years ahead. Then you stay the course. If you’re operating from a place of fear, it’s really hard to do that.
The News Media are in the fear business. If it bleeds, it leads. Slow steady progress gets ignored. Stories that don’t fit their authorised narrative get buried. That’s how The Overton Window works.
I give you exhibit A below:
I say no. You can keep your corporate media. You can keep the fear, the advertising, the politics and the woke bullshit.
The importance of lengthening your time horizon
Here’s a diagram that summarises why things often feel tough for investors in the early years before the power of compounding has taken hold and the J curve has kicked upwards.
Here’s the issue…our monkey brain only cares about how it feels right now. It’s too short term and does not understand the maths of compounding.
Nor does the monkey brain understand the exponential arc of human technological progress. Technology compounds and this process produces great wealth for society. We can gain exposure to these themes via allocating to equities, venture capital and crypto.
But we don’t “feel” this progress on a day to day basis. Here’s what it feels like in the moment:
This is why you have to zoom out, lengthen your time horizon and think longer term.
It’s a process of re-wiring your brain to think like this. You have to do the work.
What can we learn from crypto?
The Escape Artist is not above
stealing learning good ideas from wherever they might originate. I don’t do cults and my tribe is tribeless. So I have no problem with borrowing good ideas from crypto.
Not only are many of the crypto people as smart as hell and considerably richer than us, they also seem to be having more fun…and we are supposed to be having fun here.
So what can we learn from crypto culture? Some of the slang is instructive: consider NGMI and WAGMI for example. These are excellent shorthand for a couple of key concepts of financial independence.
NGMI (not gonna make it) describes all those people complaining and arguing on the internet rather than taking action to improve their life.
WAGMI (we are gonna make it) is shorthand for optimism, resilience and good humour.
There is a meme in crypto that the successful investors will make it to DeGen Island. Imagine a Bond Baddy’s Tropical Island Lair where everyone has more than enough money for a lifetime of degenerate behaviour. It’s a joke with a useful motivational purpose.
Hey…I said it was a joke….I didn’t say it was a good joke.
What’s my point?
To achieve financial freedom, we first have to believe it’s possible. We then have to make good choices.
I could be wrong. Hell, we could all be wrong. But I choose life. I choose optimism.
I say we are gonna make it and I place my bets accordingly.
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