29 | Patient Investing, Part 1 of 7: Believe

Investing in a manner that you believe in and in which you have a baseline understanding knowing that, regardless of strategy or plan, the only guarantees are that someone will always outperform you and that how you behave during the inevitable unsettling times will be the biggest determining factor in your lifetime returns. Owning businesses tends to increase potential returns, diversification tends to make the ride smoother, long horizons tend to increase the probability of positive returns, and above-average patience is a superpower.

There is no "right" way to invest.

If you don't believe me, go read this book, or at least it's summary, and then come back.

There are infinite options and choices when it comes to investing and not a single one of them will work for the long haul without some level of personal conviction and belief.

There is a spectrum of belief - some people will personally know the ins and outs of their beliefs and may even have experienced something tangible that led them to believe. Others will have heard testimonies from trusted family, friends, or colleagues that have led them to believe.

In The Psychology of Money, Morgan Housel says, "Manage your money in a way that helps you sleep at night. Some people won't sleep well unless they're earning the highest returns; others will only get a good rest if they're conservatively invested."

I'd add that some people will sleep better owning index funds, some will sleep better owning actively-managed funds, some will sleep better owning individual stocks, some will sleep better owning real estate, some people will sleep better owning their own business, and some will sleep better in a mixture of many things.

Regardless of what you believe, I think the deepest form of belief is being agnostic to benchmarks and "other people" - 100% belief that the way you are invested will allow you to live the life you most desire to lead.

This doesn't happen overnight, but it can happen over time and it is worth pursuing over time because the freedom that comes from the next dollar of financial wealth pales in comparison to the freedom that comes from the ability to say "no" to the next shiny investment or to ignore what all the "other people" are doing.

The "baseline understanding" is a touch trickier because there is a risk of getting buried in the weeds.

With that said, part of belief is a high level understanding of what you are trying to believe in - even if it is only the broad strokes.

The knowledge that investment returns are only possible if you are willing to stomach investment losses is part of understanding.

The ability to acknowledge when a specific type of investment or strategy is too complex for you to trust is part of understanding.

The ability to see investing as being an owner and participating in the progress of humanity instead of viewing it as a slot machine that randomly creates winners and losers is critical to understanding.

Belief and baseline understanding ensure that we are prepared for the two guarantees of investing...

Additional Reading

Forget beating some index, instead focus on your financial goals by Carl Richards

Internal vs. External Benchmarks by Morgan Housel

My 'Too Hard' Pile Is Pretty Big by Christine Benz