Whether you like Tim Ferriss or not is not important. Tim wrote a really insightful blog post recently about why he is stepping away from investing in startups. What intrigued me was why he did it. As a trader and investor I can empathize with what he is going through. Whether you’re an investor in startups or a trader in the public markets, stress is your enemy, but almost impossible to completely eradicate. Tim has a number of great points in this blog post. I will attempt to provide some of the most relevant to this conversation.
FOMO results in “B” Player Status
As an investor/trader many know that the “Fear of Missing Out” is strong. You hear of all the good trades and none of the bad. You fear that you are missing out on trades or investments that other people are making gobs of money on. The same goes for startup investing. If you are an angel or venture capitalist “FOMO” is just as strong. FOMO creates stress, terrible stress. This stress takes you out of the game and results a “B” investor status. Tim realizes that because of FOMO he is investing in more startups than he should. He’s becoming a “yes” man, which becomes an overwhelming experience. As a trader or investor I compare this issue with not being able to choose the investment or trading strategy that best fits your character. As an trader/investor your goal is to make money. When you see others make money or hear of these terrific trades, you start to wonder if you’re missing out. Should your trading/investing strategy change? It goes back to the phrase, keep it simple stupid. If you try to take advantage of every “opportunity” available you get stuck in the mud. You get buried alive. You get stressed out. You can’t focus. Your mind is too busy. Public markets give the trader/investor opportunities daily. Stay focused on what you’re good at, don’t worry about what others are saying, and maintain your edge. Don’t become a “B” player.
Does a large guaranteed decrease in present quality of life justify a large speculative return?
This is a terrific question for any trader/investor. I guess another way to ask this question is whether you would take the trade if the stress of the trade created insomnia, lethargy, loss of appetite, and/or moodiness, but the potential outcome could change your lifestyle. I would argue that this investor is on the path to destruction if that trade gets placed. I’ve been there. I have taken positions where the stakes were much higher than my comfort level. That level of uncomfort will almost always result in a negative outcome. There are always going to be individuals that are comfortable in that type of scenario and can think logically in unbelievably stressful times, but those are few and far between. Tim makes a terrific point in saying that you should always know your ROI which comes in the form of cash, time, energy, or otherwise. “An investment that produces a massive financial ROI but makes me a complete nervous mess, or causes insomnia and temper tantrums for a long period of time, is NOT a good investment.”
Leverage your strengths instead of fixing your weaknesses.
If this statement doesn’t make you think as a trader/investor you’re missing the point. Tim states, “Don’t push a boulder up a hill just because you can.” It’s absolutely true, but most “investment/trading guru’s” will push their methodology because it may have worked for them or a few others. Here’s the problem: the chance of that specific investment/trading methodology fitting your personality is pretty damn low. Before putting money on the line you should be seeking out your strengths and weaknesses. I have been a trader and investor for over 15 years and many “trading gurus” will tell you that eliminating your weaknesses will create success. This is a bunch of baloney. I know that my strengths are not geared toward short term trading. So, why should I trade short term? What benefit will that provide me, except years of attempting to change core behaviors to fit the mold. Why not understand and leverage my strengths? That is your edge, right? Understanding this concept will increase your quality of life and ROI as an investor.
This statement dovetails nicely and is somewhat related to the previous point. Many traders/investors are completely consumed by their profession. They’re usually an all or nothing type of person. It’s difficult to find the shut-off switch. Personally, I have realized that if and when I find it hard to shut down and focus on something other than investing, I need to step back. We all have a tendency to get completely absorbed by something and it’s difficult to pull yourself away. We don’t even realize our stress is through the roof. So, what do we do to combat this “disease”? Stop. Stop trading. Stop investing, until you can take a step back and see how it’s effecting you. I give Tim a lot of credit. He has been an extraordinarily successful Angel investor. He realized that he is an all or nothing guy. He knows, in theory, that he can’t follow through if he tells himself he will only invest in two deals a quarter, which he has tried to do. If he wants to slow down and create a better quality of life, he needs to stop for a breather. He needs to stop investing, so he can reboot. What’s the worst that can happen? Ask yourself that question, and write down the answers.
I was always told, “take your time, the market will always be there when you get back.” It’s calming advice. I believe the hardest part of being a trader/investor is the ability to step back and see the bigger picture. This profession can eat you alive faster than any other profession in the world. I don’t believe that there is another profession in the world where it’s absolutely imperative that you know yourself inside and out in order to be somewhat successful. Make sure investing is creating the lifestyle you always wanted, not the stress that buries you alive. Your quality of life is positively related to your success. So, if you need to take a step back, listen.