Skip to main content

Bias For Clarity

Bias for action. Gets things done. Go-getter. Traits companies big and small look for. And for good reason, you're being hired to do things! However, action is a secondary step that often overshadows the primary step, direction.   Clear direction is the foundation that enables our actions to takeoff. Without it, we're stuck in the mud.  Striving for clarity is an underrated skill. Having the courage to ask ( seemingly ) obvious questions, and to check in, making sure we're all on the same page. "O bvious " questions are a low risk, high reward way to add value. At worst, you'll add confidence to our actions. At best, you discover a misalignment that saves us from a dead-end.  The more people, the more clear we need to be. The bigger the initiative, the bigger the risk of reaching the finish line, only to realize expectations were off.  Success is always uncertain. But we can be certain about what we want and what everyone's job is. Things that can be clea

The Cost of a YOLO Account

Core and explore. A popular approach to investing that allows for a sensible portfolio with a hint of recklessness. The strategy is simple. Keep most of your holdings in a risk-appropriate portfolio and reserve a small portion (up to 10%) to go nuts. Whether that be mushroom stocks, Bitcoin or GameStop. Your cheat meal to an otherwise healthy diet. 

Trading is tempting. The thought of finding hidden gems or leveraging up your returns is exhilarating. It's the skydiving to indexing's drying paint. Having some "play money" is a good way to scratch this itch without putting your entire financial well-being at stake.

The downside is the cost of entry. It's entirely possible you'll hit a few home runs. However, odds are you'll come up short over time. These losses compound and become a huge drag on your lifetime returns. 

Trading is addicting and time consuming. You'll be constantly checking your account and stressing over your next moves. It's a toll on your psyche. 

If a play account is for fun, it's important to consider the cost of this "fun". Speculative investing comes with the mantra "invest only what you're willing to lose". Is this fun worth 10% of your net worth? Very few people are willing to spend that much on anything, but for some reason we see money differently when it hits our brokerage account. We detach, like it's not real money. 

It is real money, money that can be spent elsewhere. Vacations, gifts, nice meals. Things that can be more fun and cost much less. 

I personally don't have a play account. I find the idea of having concentrated holdings too stressful. Even watching the past week unfold from the sidelines was exhausting. If you do take the gamble, please do so responsibly and recognize the costs. 


Popular posts from this blog

The Art of Giving Feedback

Constructive feedback is an awkward affair. You don't want hurt feelings, but recognize the importance of honesty. You've tried the classic "hoping things will get better on its own" and unfortunately it hasn't played out. When giving feedback, here are a few things that I try to keep it mind. Start with empathy. Step into their shoes and understand their story. If you don't know, ask. Be genuinely curious. Feedback is a dynamic affair. Shared communication with a shared goal towards progress. Take the emotion out of it. Focus on the situation, not the person. Focusing on the person adds unnecessary weight to an already emotionally-bloated event.  Be specific. Give clear examples. Vague feedback equals dismissed feedback.  Doing above won't de-awkward things fully, but it will dampen it and increase the chance of better outcomes. 

Negative Feedback, Positive Lessons

In the battle against plastic bags, a five-cent tax was shown to be much more successful at deterring usage than a five-cent credit for bringing your own bags. Carrots satisfy but sticks sting, and they sting hard. So we default to the less painful choice of avoiding loss. Loss aversion impacts the way we process information. A 2019 study  invited participants to learn through a series of multiple choice questions. Each question only had two options to choose from. Whether guessing correctly or not, they would still learn the right answer.  Despite the identical learning opportunity, participants were much more successful at recalling the answers they guessed correctly than those they got wrong.  "You're right!" feels good. We savour the moment, analyzing every detail.  "You're wrong!" stings. We want to quickly forget, dismiss, and move on.  When we succumb to loss aversion, we miss opportunities to learn. Failure is part of the process. We'll experie

ELI5: Stock Buybacks

Stock buybacks have been in the hot seat. Companies of all shapes and sizes are facing criticism for their "excessive" buyback programs. Today we breakdown what buybacks are and if they're really as bad as people say. What is a Stock Buyback? A stock buyback is exactly what it sounds like. A company buys back  stock. Also referred to as a  shares repurchase . Done either by  tender offer or in the open market . A tender offer is a proposal to shareholders which outlines the number of shares a company is willing to buy and the price they are willing to buy for. Shareholders can either accept or decline. There's no obligation on their end. More commonly, a company will simply repurchase shares in the open market. Why Would a Company Buy Back Their Own Stock? When companies have excess cash, buybacks are a way to distribute wealth to their shareholders. Buybacks reduce the number of outstanding shares, driving prices up and increasing shareholder