Nuggets of Wisdom From Taleb & Zweig


Just a couple of random things I found via Twitter. First was a tweet from Michael Batnick with a picture of a book excerpt by Jason Zweig that had a couple of great reminders.

Everyone knows that beating the market is nearly impossible--but just about everyone thinks he can do it.

If you actively engage in markets and are at least mediocre, then there will be periods that you outperform and other periods where you lag. One thing that I write a lot about in this regard is that figuring out what to avoid can at times be more important than figuring out what to own. If a sector of the S&P 500 ever gets to 30% again, then I would think underweighting that sector would be an example of when avoiding (really I mean underweighting) that sector would have a good chance of leading to portfolio outperformance for the belief that 30% is not sustainable.

Of course the even bigger picture focus should be whether you are on a path to having enough money when you need it or at least a path to get reasonably close. And as we have been saying here for years, for most of us, the amount we save will have a much bigger impact on what we end up with than our performance. As an investor, trying to save for retirement, all you need to be is close, either way, to the market's long term average provided you have an adequate savings rate and you don't repeat self-destructive behaviors like chasing performance, panic selling, anchoring and the countless others.

I just circled back to the tweet to write about the next one but it looks like I mostly covered it, click through though to check it out.

Nassim Taleb offered his thoughts on a few topics to Esquire. He says that he has never borrowed money, literally never. This may not be practical for the majority of us but the idea of being underleveraged is a key building block for long term financial success. In terms Taleb might use, having low or no debt to service will make you more antifragile in the face of some adverse circumstance.

"There’s nothing wrong with being wrong..." As an investor, your portfolio will be a series of decisions, some of which will be wrong. Hopefully you are right a little more often you're wrong. Let that sink in, there is no avoiding being wrong about things in your portfolio. The key is to not act out emotionally when you get something wrong or when it looks like you might be wrong.

Money can’t buy happiness, but the absence of money can cause unhappiness. Money buys freedom: intellectual freedom, freedom to choose who you vote for, to choose what you want to do professionally. But having what I call “fuck you” money requires a huge amount of discipline. The minute you go a penny over, then you lose your freedom again. If money is the cause of your worry, then you have to restructure your life.

This is a great passage and success in this regard doesn't have to mean being rich. You can get there by living below your means. The easiest path to living below your means is having less mortgage than you could qualify for (for just 15 years), driving your cars for as long as possible (thus no car payments for many years) and it would be all the better of course paying for discretionary expenses out of pocket without incurring credit card debt. Again talking about antifragility, if something bad happened with a job at 45 or 50 and utilities, food and health insurance where the only expenses, think how low (or at least relatively low) stress that would be. Life is rarely that simple but it illustrates the point.

People worry about money and fight about money. Taleb is saying, and I wholeheartedly agree, that you will be happier if you can reduce the likelihood of having that worry and those fights.