When I was young, I was a semi-competent golfer but I had two serious mental flaws and it took me a long time to get over them. “All or nothing” and “That is not a mistake that is a challenge.” I am in remission on these but I need to decide consciously every time. It is not intuitive.
Suppose you are an all or nothing golfer. You come to a par 4 with an elevated green, water in front, and traps left. The pin is tucked left. The tee shot is in the middle of the fairway. You have choices. You can hit the second shot to the middle of the green and two putt for 4. Or, you can attack the pin.
Potential two shot loss versus one shot gain. I had better be pretty sure I can hit the shot.
Now let’s look at your portfolio. Are there any three option six investments? If there are a few, that is okay. As long as you can say, I would know if I lost the money, but I would not miss it. After all, nothing is much fun if it is routine. Play for big success only when you can afford to lose.
If there are many of this type, then you need to restructure the way you think. Done right life is not an all or nothing proposition. Most of the success in life is just showing up. Play for acceptable results over a long time. Accept the odd adversity – three putt for bogey, and the odd exceptional result, one putt for birdie. Play for par, an acceptable continuing result. There is nothing wrong with a balanced portfolio over a long time.
Sometimes you just have to go for it. You can feel it. Take a small portion (maybe 5% or 10%) of your rational portfolio and set it aside for these cases. Keep it isolated. Don’t keep moving 10% into this category. If you lose it all, maybe you need to adjust to the idea that taking big chances and making exceptional shots is not your best first choice.
My second serious flaw was and still is, the inability to accept a mistake. On the same par 4, I hook the ball off the tee. Into the trees. More trees than a squirrel can climb in a week. However, I can see the right side of the green through a hole in the branches. Trees are mostly air, right? Five foot hole, one and a half inch ball, what could possibly go wrong? This is the four option eight condition.
When you are in trouble the first thing to do is get out of trouble. Then play on. Five option four. Or as Warren Buffet says, “When you find yourself in a hole, the first thing you should do is stop digging.”
It is time to kill off the losers in your portfolio, and invest the remnants in something more productive. If you would not buy the security at the current price, then you should not keep it at that price either. The decision to buy, and the decision to keep, are fundamentally identical. Either way you have a choice between the security and the money. As the Martian would say, “Do not pay attention to how you got here, make the best decision based on what you see now.”
Now, what to do with a ball in the creek beside the green, 20 feet to the hole, half an inch of it showing out of the water? Play it, right? I could chip it in from here.
Damn! Reset. Think first, play second.
Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. firstname.lastname@example.org