Doughnuts and dollars

Doughnuts are hardly allegorical, though perhaps at a push you could conjure up some vague symbolism.

The ring-shaped doughnut could represent the circular nature of life and death, the inexorable march of time in the universe, the futility but majesty of it all. The jam-filled doughnut is perhaps a lesson in not judging books by their cover.

When I think of doughnuts, I think of the age-old challenge of not licking your lips whilst eating them. What profound philosophical concept is this supposed to embody? Why, the human condition of course.

Distinctly average

With a full set of sweet teeth, the juvenile Master MedFI was no match for said doughnut lip-licking challenge. The adult version is hardly better. Why can neither past nor present me channel the willpower to resist?

It irks me slightly, as I think of myself as someone with a higher-than-normal degree of self-control, who can readily rise to a challenge, or engage in delayed gratification. Therein lies the error.

It’s easy to Dunning-Kruger yourself into thinking you’re supra-normal, whether that’s at refraining from lip-licking or managing money. The latter is especially true in FI circles, where people may overestimate their investing ability due to their greater-than-average understanding of financial affairs. The truth is that we are all subject to the same foibles of human nature.

Being led into temptation

In the world of personal finance, recent times have been awash with individuals raking in profits with seeming wanton abandon. Cryptocurrency, meme stocks, non-fungible tokens or even just the general market rise will have filled the coffers of a fair few.

As wave after wave of fast-rising price graphs filled my newsfeed, I found it difficult to resist jumping on the rapidly ascending bandwagon(s). FOMO rose and rose, filling my brain with temptation like a running tap fills a bath. Resist I did, however, and there’s not a GME share, NFT or Dogecoin anywhere to be seen in my portfolio.

There’s a hindsight-heavy argument that I was erroneous for not getting stuck in; many have profited generously from these ‘investments’. There’s probably an alternate version of me somewhere who bought into the hype and made a killing. There’s also probably a version of that guy who got stung and lost a truckload. I’m content enough with having been largely unaffected by the whole set of affairs.

Resilience or randomness?

How did I withstand the gnawing temptation to ride the cash cow? With dollar signs in my eyes, how did I see straight? How did I refrain from licking my metaphorical sugar-laced lips?

All truth be told, I can’t claim it was down (purely) to steely resolve. Or a long-established investing philosophy that I wouldn’t deviate from. Nor any sort of foresight or deep economic understanding.

There’s probably a sprig of petulance in the mix, not wanting to be part of the crowd. There’s undoubtedly the advice of many other financial commentators rolling around my subconscious, warding me off rash, under-researched or ‘too good to be true’ investments. There’s the sheer lack of cognitive bandwidth as I navigated a series of work-related hurdles over recent months. In other words, it was nothing and everything. It was luck.

Regardless of the reasons, very little has changed with regards to my investing over the past six or so months. I’m intrigued by that temptation though. Who’s to say that I would be able to resist similarly tantalising bait in the future? How can I protect my future self from being lured into making spur-of-the-moment investment decisions?

Empirical itch-scratching

Having some sort of personal investing manifesto is often billed as a key component of a successful strategy. I agree. It should also shield you from errant investing behaviour, though I have my doubts about its utility in the face of significant temptation.

Even if your investing policy is an exquisitely crafted magnum opus that perfectly reflects your financial philosophy, an enticing enough prospect could lead you to betray it. You’d have to be a character with significant self-control to resist the weekly, daily or even hourly news of the latest fad making millionaires from thin air. As doughnuts have shown us most people, myself included, lack that level of discipline.

I thought of other methods that you could employ to try and stop oneself buying into fad investments. Checklists that must be completed before buying a product. Investing budgets that are totally automated, leaving no room for individual whim. Other more elaborate ones too.

Yet there are powerful motivators that I think would overcome any of these conceptual fail-safes. The thrill of the chase in plumping for that fast-rising stock. The same excitement that comes from buying a lottery ticket; the ‘what if’, the daydreams of winning. The fear of missing out making you yearn for that new, niche or fad asset.

Counter-intuitive

Instead of trying to put methods in place to stop making investment choices in the heat of the moment, I wonder whether I could assuage temptation by doing almost the opposite. Rather than being cajoled by the dopamine-craving parts of the brain into buying the latest ‘big thing’, I could make investments now that had greater aforethought behind them but still scratched the cerebral itch. That is, in place of attempting to refrain from licking sugar-coated lips, why not just lick them from the off and remove the desire altogether?

To put this into practice I would buy small amounts of some assets, e.g. cryptocurrency or commodities or what have you, and then use them as a cognitive shield against further rash investments at the time of booming values.

Tempted to buy the newest, bestest, sure-to-make-you-rich cryptocurrency? Ah I’ve already got exposure to that market so it’s less thrilling, less enticing.
Inflation is on the up, how about some gold? Well I already own some so I’m satisfied I won’t miss out too much.
What about this fast-rising share that’s going supernova because Taylor Swift mentioned it in a song? Eh, I already have money that I’ve actively invested in some individual stocks so this latest one is less seductive.

It’s sort of like a series of satellite investments, but with a different rationale. Perhaps a more perverse one. I wouldn’t necessarily be aiming to “minimise costs, tax liability, and volatility while providing an opportunity to outperform the broad stock market as a whole.” I would be playing with fire now, but with oven mitts on, to avoid getting my fingers burnt in the future.

I’m not certain about whether I’ll implement this protective strategy. Knowing how I fare with sugar on my lips, I wouldn’t bet on being able to resist temptation next time around. It’s certainly food for thought; it’s dollars to doughnuts that I’ll feel a similar urge to invest in such a manner again.

TTFN,

Mr. MedFI

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