The Most Important Question

We all have firmly held beliefs about money and investing. These beliefs are a product of who we are, when we grew up as investors, who our role models were, and what kind of worldview we have. 

Morgan Housel once said: “How people manage their money is a window into what they value, who they want to impress, what they think they’re good at, what they’re clearly awful at, what they’re insecure about, and where they see the world going.” He’s right, who you are as an investor is as unique to the World as who you are as a person.

Whether you’re aware of it or not, you view the world and the market through your own lens, amplified by your experiences, which help guide the decisions you make when investing your money.

All of us want to believe that our view of how the World works (or should work) is the right one.

So here is the most important question to ask as an investor:

If you had to choose, would you rather be proven right or make money? 

Said another way, are you willing to hold so tightly to what you think should happen in the market that, even when proven wrong, you won’t change your mind?

I field questions all the time that are a product of someone trying to come to grips with how their worldview mixes with investing. 

“If this person becomes President won’t that bad for the market?”  

“How will we ever pay back the National Debt, aren’t we stealing from our children?”

“Isn’t the Fed distorting markets?”

“Won’t the dollar be worthless if we keep printing money?”

All questions that are born out of a need to understand how the World and markets intersect.

But here is what I need you to understand about the stock market: it is a relentless discounting machine that continually processes information with no regard to how you think it should act.

It looks at a piece of news, or an event, or a tax proposal, or an election and says “got it, what’s next?” It does this nonstop, day in and day out. It doesn’t care what people THINK should happen: it just digests the news, adjusts to the most likely outcome, and moves on. It doesn’t care if you love or hate the Fed, and it doesn’t remember the “good old days” of investing.

If you are talking about a worry to a friend, or your advisor, believe me, the market KNOWS and has been discounting it.

Look, we all want to be right, believe me, I once said that I’d live to see another Chicago Bears Super Bowl, so I know what it’s like to hang on to a view.

You simply cannot let your desire to be proven right impact your ability to make money, they are two different things, and I don’t want you falling into a trap of your own making. 

(While you’re here, I‘m starting a new series called “Quick Takes” on Baird’s Youtube channel, check out my National Debt video or my short hit about selling stocks because you’re afraid of something. More great topics to come!)