Psychology

Minimize Your Miss

Psychology, Beginner

I have a good friend whose son is an accomplished golfer. Beyond the natural fatherly pride that he feels, there are also moments of awe where a wisdom borne from years of practice sneaks through in ways that you may not expect from such a young person. For example, when asked how he got so good at golf, his son replied with this (paraphrased) all-time gem:

Hole-in-ones are mostly luck, so I don’t fixate on hitting great shots. I practice minimizing my miss.

That’s not just solid advice on the golf course, but also a remarkable philosophy to live by.

It also struck home with me, as my investing philosophy is a little different than what you usually see in popular finance. Promoting trite “5 easy ways to maximize your returns” is a lot easier than explaining nuanced concepts involving uncertainty. But the idea of “minimizing your miss” is a great metaphor that brings the range of outcomes to the forefront. Wise investing isn’t about always swinging for the flag, but staying on the fairway.

The cool thing about working in visuals is that there are a few good ones that demonstrate this investing philosophy particularly well. So let’s hit the driving range and talk about the mechanics and benefits of consistent investing.

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The Human Complexities of Correcting the Record

Uncategorized, Psychology, Theory

In a recent article on his website Early Retirement Now, Karsten Jeske extended his long-running series on safe withdrawal rates with a new entry detailing his perspective on the dangers of expecting small cap value stocks to help modern portfolios. This is not the first time he has expressed doubt in the small and value premiums, but in this case he also used the Golden Butterfly in an example case to warn against using historical small cap value data to make educated retirement decisions.

I believe there is plenty of room for differing opinions in the personal investing space, and I am not normally the type to reflexively reply to every criticism. That said, the article raises several interesting points that I believe are worth discussing. On some things I agree with Karsten. On others we clearly have very different philosophies when it comes to the best use of data. And on at least one issue, I believe the article is misleading and requires a balancing explanation.

Just to be clear from the start — while we may disagree on some things, my goal is not to lob rhetorical grenades or participate in petty internet fights. I simply plan to share my own unique perspective to help you see another side to the story. No drama. Just real talk about how to interpret historical data.

So no matter whether you love small cap value stocks or think the value premium is ancient history, let’s all lay down our arms and talk about the best way to approach the numbers in front of us.

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How to Succeed in the Worst Stock Markets

Beginner, Psychology, Theory

The US administration recently announced a sweeping series of tariffs on seemingly every country in the world, and the immediate market reaction was starkly negative with stocks falling double digits in just a few days and volatility shooting through the roof. Naturally, many people who track markets for a living are freaking out.

If you’re expecting me to join the growing chorus of chronically online personalities offering a long and important sounding take on tariffs and what I believe the people in charge should or shouldn’t do, that’s not really my thing. There are already enough people doing that, and to be honest I find the tone on both sides to be frustrating. It’s a complicated issue that very few individuals fully understand, which makes the arguments among newly minted trade experts a lot less informative than their confidence might imply.

And of course, the inherent political undercurrent that permeates the topic also has a way of distracting even very smart and respected people to the point of completely losing focus on what really matters. Ranting about government policies is an inherently unproductive activity that accomplishes nothing but raising your blood pressure and losing the respect of your peers.

As individual investors, we need and deserve actionable advice on how to handle tough situations that we have no control over. Reframe your mindset from one of fear and anger to one of resilience, and your entire paradigm changes. That proactive approach is more in my wheelhouse.

So to address the issue at hand, I’m going to avoid any guesses about the future of tariff policy impacts and concede right from the start that it’s possible it could be one of the worst economic decisions of all time. At that point, what matters is how you handle it.

Which brings us to an interesting question.

What are the worst stock market drawdowns in history, and which portfolios performed best in those same situations?

I’ve got the data. So let’s flip the script from reflexively pining over perfect market conditions to talking about what you can do to make money even in the worst possible financial headwinds.

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The Painful Investing Lesson in Elden Ring

Beginner, Psychology

Like millions of other Elden Ring fans, I’ve been spending many hours recently killing everything in sight in the new Shadow of the Erdtree expansion. For anyone not familiar, Elden Ring is a popular videogame in the RPG genre that is a wonderful combination of beauty and lore requiring a lot of skill, strategy, and patience to master.

That skill and patience requiring thoughtful stat allocations may ring a few bells, as it shares a lot of parallels with investing. I wrote about that perspective last year when I discussed Asset Allocation for Gamers, but Elden Ring hits hard on an especially important concept that I think is underserved in many investing circles — the risk of ruin.

So if you’ve spent many frustrating evenings like me getting repeatedly wiped out by a certain flame serpent, let’s talk about avoiding the same fate in the markets.

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The Rise of Financial Dopamine Culture

Psychology

Have you ever been so lost in a content feed that you feel temporarily satiated, profoundly bored, and strangely anxious all at the same time? Of course you have. No matter whether it’s your phone that you habitually check at every chance, the computer constantly streaming videos, music, and podcasts with no silent breaks, or the television screen you find yourself watching at the restaurant instead of the person in front of you, modern culture has programmed us all to crave constant input.

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Bonus Points: Contemplating the Cliff

Psychology, Bonus Points

There’s no denying that the world is in an anxious place right now. No matter whether you look outside the window to war and politics or inside your home to increasing prices and shrinking account balances, there are frightening situations all around. Everyone has a pressure point, and it’s enough to make even the most stoic person flinch and start to feel as though they’re standing on the precipice of a bad situation.

An important thing to understand, however, is that while many of the things going on around us are not pleasant they are also not particularly new. Ask your grandfather about the stressful times when he was your age, and you’ll probably gasp at what he experienced. But I bet he also enjoys the time sharing with his grandkids more than you imagine.

That’s in no way meant to diminish the seriousness of the things we’re seeing today, but simply to put the world around us in proper historical context. Life isn’t always easy, yet it goes on. And our overall happiness is largely determined not by how we coast through the good days without worry but by how we productively deal with the hard times.

That’s easier said than done, of course. And I certainly don’t have all of the answers. But to contribute towards that goal in my own small way, here’s a collection of links to articles I’ve been thinking more about lately.

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Expertise Does Not Shield You From Failure

Psychology, Beginner

My news feed recently contained a trio of interesting articles that had little to do with finance but shared a theme that is quite universal — the failure of the best of us. But rather than the typical stories of deliberate fraud and tragic mistakes that are sadly all too common, these are a more nuanced grouping that taken as a whole offer an interesting perspective on something many of us take for granted.

Expertise.

So if you think you have everything figured out or have hired the smartest minds to do it for you, read on. You may learn something new about risk and adjust your expectations in the process.

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Remembering Harry Markowitz

Psychology, Beginner, Theory

The world lost a true investing legend recently when Harry Markowitz passed away at the wise old age of 95. Markowitz is widely known as the father of modern portfolio theory, and it’s impossible to overstate his significance not only to my own outlook on investing but also to the entire modern industry of portfolio management. He was a good man and a brilliant thinker, and his unique insights will continue to influence us for a very long time.

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How Investing Personality Types Frame Your Money Perspective

Psychology, Featured

It’s interesting how the simplest question can sometimes cut straight to a complex reality that is deceptively difficult to explain. For example, I recently received a nice email from a new Portfolio Charts visitor that went something like this:

“I’m new to stocks, kind of. I know crypto decently. I’d love to know in layman’s terms what this site is about exactly? To buy stocks that are historically low and going to go back to its high someday?”

While that may seem like a softball on the surface, the thing that tripped me up is the phrasing. I recognize that the reference to buying stocks low is an important social cue that provides insight into the investing mindset of the writer. And I know from experience that it’s not good enough to reply with just any boilerplate summary, as presenting new information in terms people can relate to is critical to effective communication.

So we’ll need to go deeper. How deep? Lean back, relax, and let’s talk about the concept of investing personality types.

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Bonus Points: Failing Early And Often

Psychology, Bonus Points

Today SpaceX launched its new and massive Starship rocket on its first test flight, and the event ended with a flourish. By “flourish” I mean it exploded in spectacular fashion.

One of the more confusing things that seems to be tripping up people unfamiliar with such tests is the reaction of SpaceX employees on the live feed. At the moment when the rocket experienced its “rapid unscheduled disassembly”, rather than hanging their heads in failure the entire team erupted in applause. It’s easy to wonder what world they’re living in.

But engineers watching the event understood. The greatest design achievements are never achieved flawlessly in a single step. If they were, they wouldn’t be such great achievements! So rather than planning forever for a reality full of unknown variables that we’ll never truly understand until we finally hit the launch button, we celebrate failures for what we learn. And we press on creating something even better.

If you’ve ever found yourself evaluating portfolio ideas for the thousandth time without making a decision, stop for a moment to think about the flight crew cheering their work going up in flames. I’m not saying you should make hasty financial decisions. Be smart about it and start small. But at the same time, don’t be afraid to try or regretful when things don’t go as planned. Embrace each small failure as a required educational step towards your long-term success, and before you know it you’ll be enjoying the view from orbit.

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