As I enjoy another “winter’s” day on the Gold Coast, my thoughts are pulled towards something rather familiar, yet seldom contemplated upon. It's investing, but not just in the conventional sense of the term. You see, most of us picture investing as a money-making machine, a way to generate a return on capital. But I think it's far more profound and intricately linked to our very human essence.
Many of you might argue that investing is all about getting your capital to work. True, but there's more to the story. Investing, in my perspective, is essentially about our interactions with society. It’s about our financial dreams, the risks we dare to take, our perception of wealth, and the emotional price we're willing to pay to watch our money grow. It's not just science; it's a reflection of our human behaviour.
Every day, when faced with investment decisions, we're presented with a myriad of challenges. Each decision is a problem, waiting to be solved. Each wrong choice is a lesson, nudging us towards better decision-making.
Investing is decision-making. As we tread further down this contemplative path, we come to realise just how vital this skill is. And it's not limited to finances. Think about your partner, your career trajectory, your health decisions, the relationships you’ve nurtured over the years. Each of these is the result of a series of decisions, made over time. It stands to reason, then, that mastering the art of decision-making can lead to a happier, more contented life.
Now, I'm not asking you to turn into an investment guru to lead a fulfilling life. I'm just nudging you to introspect the transferrable skills that come with it. I came across a definition of investing recently that progressively grown on me:
“Investing is the art of using imperfect information to make probabilistic assessments about an inherently unknowable future.”
This definition might seem a bit airy at first, but allow me to break it down:
Art: Investing isn't an exact science. It's an art where one size doesn't fit all. Your choices might differ from mine, and that's perfectly fine.Imperfect Information: In today's dynamic world, it's impossible to have all the knowledge at our fingertips. What we do have, though, is often jumbled, partial, and sometimes plain wrong.Probabilistic Assessments: It's all about playing the odds. Just like life, where we juggle various possibilities, investing too demands that we prepare for a multitude of outcomes.Inherently Unknowable: As much as we'd like to, we can't predict the future. Investing reminds us of our limitations, urging us to be humble in our approach.Future: Perhaps the most critical word. Investing requires a dash of optimism. Yes, there have been hiccups in the past. But look around. Humanity has always bounced back, thanks to our undying spirit and innovation.As I reminisce, I realise I've now spent a significant part of my life observing markets but more crucially, people's reactions to them. The fascinating field of behavioural economics, with its illustrious Nobel laureates like Kahneman, Schiller, and Thaler, has shown us the importance of understanding human behaviour in all aspects of life. Though today we might nod in agreement, it's essential to note that this wasn’t always the case. Once upon a time, behavioural finance was the outcast of the investment world.
So, as I draw this reflection to a close, I implore you to take a moment and introspect on your decision-making process. Whether you're making life-altering choices or simply deciding on your next investments, don't just go with the flow. Don't set your mind to "auto-pilot." Dive deep and begin to articulate how and why you make choices that resonate with you.
After all, investing, is a parallel journey to life. And the decisions we make, shape the path we take.
