If it’s wealth we were after, most of us would feel great, because most of us are unfathomably wealthier than we were a generation or two ago. Or ten years ago. Or five years ago. Or two years ago!
What feels great is being on an upward path. That’s when dopamine takes over. That’s when you can extrapolate it and assume it goes on forever, and compare yourself to where you were before, and feel like nothing can stop you.
When that path declines – even if it happens when you have a level of wealth you couldn’t fathom a few years ago – the whole sensation shatters.
The problem is that an occasional downward path is inevitable in investing. Outside of fraud, it’s completely unavoidable. The reason markets can go up a lot in the long run is because they make you pay the cost of admission of going down a lot in the short run.
When most people hear this they respond with the classic line, “It’s the journey, not the destination, that matters!”
OK, most of the time that’s good advice. But here I think it’s backwards.
An addiction to the process of making money is a version of never having enough and never being satiated. It’s a game that can’t be won but offers the illusion of a finish line right around the corner.
Maybe that’s OK for some people – if you truly enjoy the game, that’s great. But I think that’s maybe two percent of investors, including professionals.
My sense is a lot of people suffer naively through the game expecting it to end, and they’re frustrated when it never does. Or they think they like the game, but what they actually like is numbers going up, which is maybe half the game.
An indifference to the process – the path of the journey – and a focus on the outcome and goal is probably the best most people can do with money.
Or maybe an acceptance of the process, knowing it’ll be a constant chain of surprise, volatility, setback, and disappointment, but if you can stick around long enough the odds of eventual growth and success are in your favor.
That’s very different from enjoying the process, which can quickly turn into an addiction to needing more.
Money buys happiness in the same way drugs bring pleasure: Incredible if done right, dangerous if used to mask a weakness, and disastrous when no amount is ever enough.
People
I unfortunately never had the opportunity to meet David Swensen. Yet, I believe the reason why he wrote down the word “People” three times on that index card is because the most effective way to invest through both strong and difficult markets is to partner with high quality people. More importantly, high quality people who work well together as a team. Look no further than the article titled “All Stars: Is a great team more than the sum of its players? Complexity science reveals the role of strategy, synergy, swarming, and more.”
The authors, Jessica Flack of the Sante Fe Institute and Cade Massey of the Wharton School, highlight how the some of the greatest performance throughout history, be it The Manhattan Project, the Michael Jordan-era Chicago Bulls, or a chorus of frogs singing at night, are not due to each having the best individual scientist, basketball player, or amphibian. Rather, they are due to their synergistic interactions. “To how well strategies and individual attributes combine to produce team performance, individuals coordinate in space and time, and what roles leadership and larger organizational environments play in bringing out their best.”