Back in the pre-Covid glory days, when you could have charity golf tournaments, I played in the LifeHouse tournament at Carlton Woods. I'm not much of a golfer, and because it's such a time-consuming hobby, I tend to stick with things for which I have a natural propensity. I mention this because this tournament was different, and I will tie it to an investment lesson in just a minute.
This tournament was different because I made a mental deal with myself. My swing and I determined we would limit our effort on every downstroke to 75% power. I had learned after decades as a shankster that hitting the ball hard could lead to spectacular glory or the agony of the brushy ravine on the right. This simple minimal effort trick shaved almost 20 strokes off my typical score. I had no 300-yard drives to wow my small crowd of three and nothing impressive except a mid-80's round, the likes of which I had never before achieved.
So how is this related to investing? It's natural to see GameStop, Bitcoin, or PlugPower rise 500% or more and wish we had some. But pursuing such flashy short-term results comes at great cost. Despite PlugPower's recent meteoric rise, if you had purchased it in 1999, you would still only have 2% of your money remaining. That's right, the stock traded 50x higher back then, and the patient just revived his pulse while already in the morgue drawer. Just like the stroke penalty for a lost ball, the math of investment losses is tremendously important to consider in the context of wowing gains. After a 99% decline, it takes a 10,000% profit to break even. Don't get mesmerized by those back half percentages alone.
These realities are the price of chasing the ego rush of short-term victories. Other costs, like 40% taxes on short-term gains and the only partial deductibility of losses, make trading-centric philosophies an impossible tactic to create lasting profits.
Stay focused on winning the game, not on hitting the most dramatic shots.
Read More: Playing the Long Game