Your inner boss is why you lose money in stocks

Plus: the "lindy" case for holidays & the “slacker” guide to grad school

I’ve been reading into personal finance and found a Big Quit Energy insight in, of all places, J.L. Collin’s classic The Simple Path to Wealth.  At its heart is the question of why so many people lose money in the stock market even though, as any financial advisor¹ will tell you, it’s historically one of the most dependable places to grow wealth.  

I should be more specific: investing in index funds that buy equal stock across all companies and, in doing so, follow the average market price has historically been the most effective strategy (ethics aside²) for growing wealth. A simple, borderline braindead (minimal decisions, minimal research) way to invest, it consistently outperforms “experts” who “pick winners” among individual stocks. 

This most capitalist area of personal finance, ironically, is one where effort is counterproductive.  So why do around 80% of people who get into stocks lose money, ignoring this strategy and trying to “beat the market”?  Collins offers two reasons, both driven by achievement-brain:

1. Most people can’t accept the notion that they can’t beat an “unthinking” index.  

2. They have an even harder time “settling” for average performance³, even if it’s getting them to where they want to go.  It’s not enough to get money: most of us have been trained to crave getting more than others, to the point where it feels blasphemous to be happy with succeeding along with the crowd. 

In short, the drives for status and achievement we’re taught we need to be successful are, in this case, sabotaging people’s chance at successful investing.

It’s (probably) naturally human to crave competition and status over others in at least some areas of life.  I know I do.  Save it for crossfit, though, and don’t let your inner boss fuck up your finances.  

Stick your shit in an index fund⁴, snuggle up to a good book, and laugh at the self-saboteurs staying up all night trying to out-hustle you in an anti-hustle game.  

Bonus hits of interesting reading

The “Lindy” case for more federal holidays:  I often find the author’s takes to be infuriating, but I respect the basic thought-process: if something has been done for a long time, it’s more likely to be a good practice than something newer.  Wouldn’t you know it: the amount of time off Americans have is historically low and our work-humping is a new and unproven fad. 

Dr. Devon Price’s guide to graduate school success:  Probably the most-cited person on this blog, Price recently resurfaced this 2017 guide for new grad students.  Even if you’re not going to grad school (God knows I never plan on it), this advice is still very helpful for navigating a job environment without running yourself into the ground. 

1. ...which I am not, by the way.  If you’re making financial decisions based on a blog called Big Quit Energy, don’t come suing me later just because you’re a total moron.

2. You may object to putting money into companies that are actively harming the world, of which the stock market obviously has a ton.  There are cause-driven index funds that focus exclusively on companies that uphold certain environmental / moral practices.  I don’t know how well those perform because, again, I am NOT a financial advisor. 

3. This is especially hard, Collins points out, when they see media fawning over investors who beat the market for a year or two.  What the media always fails to do is follow up on these people when they inevitably revert to the mean.  You may temporarily outperform the average on random chance (this is basic statistics), but no one has figured out how to do it indefinitely. 

4. For the last time, holy shit: I am NOT a financial advisor.