How to Be Selfish... the Right Way

Editor's note: The market and our offices will be closed on Monday, December 26, for Christmas. Because of this, we won't publish Altimetry Daily Authority. Please look for your next edition on Tuesday, December 27.

The first law of nature is exactly the same as the first rule of investing...

In many parts of the world, the holiday season is the time of giving. To me, this renewed focus on others is a great thing for society... and for each of us individually. The very act of giving requires and reinforces a valuable mindset.

It's easy to get caught up in our own needs throughout the year. Whether working or retired, most of us go through our day-to-day lives trying to get instead of to give.

That selfishness is a natural behavior. It's so ingrained in us that it has been termed the "first law of nature" – self-preservation.

When you think of self-preservation in terms of your money, you likely think of our tendency to shy away from losses. Investing legend Warren Buffett's famous rules of investing follow this same mantra...

         Rule No. 1: Never lose money.

         Rule No. 2: Never forget Rule No. 1.

This means preserving your capital is the most important thing you can do as an investor. It's the first law of nature when it comes to the markets.

"Don't lose money" might sound like an obvious rule. Of course, that doesn't make it an easy one to follow.

So today, I want to take a closer look at exactly how best to preserve your capital... by turning the first law of nature on its head.

If you took the idea of capital preservation literally, you'd be focused on the short term...

That would suggest leaving all your money in volatility hedges like savings accounts or gold. The most cautious among us might be tempted to put their money under the bed... or hide their gold bars and coins behind their entertainment centers.

That would be a big mistake. In fact, dumping your cash in these assets is a surefire way to lose over the long term.

In the immediate future, preserving your capital requires reducing volatility. That's what makes these asset classes so tempting to investors. They're shielded from the market "noise," so they're considered safer.

That also means they won't move much when the market soars. After all, U.S. equities have outperformed all of these supposedly "safe" asset classes over time.

Gold prices are up a respectable 8,400% over the past century. Meanwhile, the Dow Jones Industrial Average is up 43,000% in the same time frame. Sitting in safe assets means you miss out on all that upside.

It's an example of how self-preservation can turn into short-term selfishness. You want to make sure you have all the money you need now. At the same time, you're actually stealing money from your future self.

If you want to be long-term successful, you have to be long-term selfish. Your daily investing choices should focus on how you'll benefit down the line.

That means ignoring the day-to-day market volatility. You shouldn't invest based on whether the stock market will go up or down tomorrow. And you especially shouldn't pay attention to how those moves might make you feel.

If you want to do well in the future, stocks are the right place to put your money... even if that's hard to stomach in an environment like today's.

Over time, a nearsighted investment approach does the very opposite of self-preservation... 

Cash, gold, and bonds all tend to underperform equities. In the long term, you're not making much more than inflation... if that.

Once you account for inflation, and for the opportunity cost of being in a better asset class like stocks, you'll see that you're actually far behind. You've lost money.

So this holiday season, remember the first law of nature. Your sense of self-preservation – both personally and with your money – needs to be rooted in the long term.

In our personal lives, we're reminded of the importance of giving. It's easier to embrace that spirit during the holidays. Let's extend that mentality throughout the entire year.

And in terms of finances, know this... Short-term selfish decisions won't help much in the end. The U.S. stock market has shown incredible resilience through the years. It's full of fantastic, growing businesses.

That's where you should be focusing your investments today.

I wish you love, peace, and joy this holiday season.

Best,

Joel
December 23, 2022