Two very interesting but very different writings this weekend got the brain waves working for me on the theory of Time. Not in an Einsteinian sense or even a Dr. Whoian sense but rather, how we use and abuse time to our detriment in so many areas.
The first was this brilliant long-form post by Morgan Housel of Collaborative Fund (http://www.collaborativefund.com/blog/the-psychology-of-money/). It is a brilliant [Morgan is one of the great thinkers of Finance right now] treatise on how we “think” about investing and why we do it wrong so often because of our psychology.
I especially liked this part on optimism:
Most promotions of optimism, by the way, are rational. Not all, of course. But we need to understand what optimism is. Real optimists don’t believe that everything will be great. That’s complacency. Optimism is a belief that the odds of a good outcome are in your favor over time, even when there will be setbacks along the way. The simple idea that most people wake up in the morning trying to make things a little better and more productive than wake up looking to cause trouble is the foundation of optimism. It’s not complicated. It’s not guaranteed, either. It’s just the most reasonable bet for most people. The late statistician Hans Rosling put it differently: “I am not an optimist. I am a very serious possibilist.”
Optimism seems hard because of so many factors but the one we never think about is the TIME it takes for optimism to truly take hold. Consider optimism as the companion of compounding in this case. Your investment may not yield much in any given year but small, incremental gains build into massive gains over time.
We all love the story that an iPhone has as much computing power as the biggest computers of the 1970’s, which were room-filling giants and required you to wear a white lab coat to use. Optimism from computer engineers turned into the marvel of iris-scanning technology during my 42 years of living. Of course there were lots of pessimists at that time that predicted computers would never amount to much of anything but the optimists won out because time was on their side.
The second writing was this piece from Josh Brown of Ritholtz Wealth (http://thereformedbroker.com/2018/06/04/baseball-business-and-life/) on the lessons he learned from coaching his son in Baseball. It is about Baseball but it really can apply to almost any sport and as a Lacrosse coach, I nodded along knowingly with the parts on setting an example, dealing with expectations and trusting your co-coaches to do the job.
As Josh properly pointed out in a Twitter followup, “The Investment is always time” which is a great way to sum up coaching kids…… and dealing with your investment planning. Sure you WILL deposit money you have saved into some type of account to reach some goal but the real investment you make is in the time that your money will not be available for you to spend. That is the hard part for clients.
“Well if I just had that $1000 I put into my retirement account, we could definitely go to Chicago for the weekend!”
“I’m sorry we cannot buy you that pony daughter, because Mommy and Daddy have put pony money away to become education money. You’ll just have to make do with the 2 minute pony ride at the Fall Fair instead”
All of these are investments in time. They are investments in optimism. You are taking that pony money and expecting that in the future it will turn into a smarter child which will become a happier child and a child that will “do well” in life. Your investment eventually turns into something to make you full of pride. Not everyone gets that ending but the optimist uses time to their advantage knowing it is more likely an outcome than not.
The same principle applies to your career, raising a family, learning a new skill or investing your money. The optimistic people are the ones that often end up with the most success. They know that time is on their side and are willing to keep trucking along because “it should work out in my favour at the end”.
The pessimists? Well they are your friends that habitually quit a job because “it wasn’t working out for me” or the ones that complain about their kid’s coach at every opportunity and change teams every year because “the coach doesn’t get it”. They are also the clients that sell their investments at the bottom and buy at the top. They are fighting the one battle against an opponent that cannot be defeated; time.
The one thing to remember is that optimists do not ALWAYS succeed but they more often than not find some measure of success because they are a teammate of time; the one opponent no one can defeat.