33 | Patient Investing, Part 5 of 7: Be Careful What You Ask For

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.

A friend of a friend rode the GameStop wave from the bottom to the top and back to the bottom in January and February of 2021.

An initial investment of something close to $10,000 grew to something close to $1,000,000 within a few days with the biggest moves happening within hours and even minutes.

What a psychological Petri dish.

So much personal financial wealth tied up in a single stock, that for a couple of days a financial future was reduced to a slot machine with pay outs surging and plummeting by life-changing amounts every few minutes.

I think it's easy to say, "How did you not sell it when it was $1,000,000?!?", but the problem is it's impossible to put ourselves in the vacuum.

If you've made $1,000,000 in the last 10 minutes from holding something, what do you think you're going to do for the next 10 minutes?

Please don't pretend that you have so much control over your rational brain to cash out your winnings.

If you cash out and it continues to surge, you're kicking yourself for a pretty long time.

If you don't cash out and it plummets, you're kicking yourself for a pretty long time.

If you happen to cash out and it plummets, odds are pretty good that you'll have an imaginary friend named "Overconfidence" live the rest of your investing life with you helping you hunt for the next big opportunity.


The Gamestop saga certainly compressed the time and increased the dollar amount, but it's a textbook example of what's happening when we concentrate our financial net worth into a single company or investment.

If you Google "diversification", you'll get some analysis about holding 25 or 30 individual stocks.

It's not actually about the numbers though.

Diversification is about matching up your expected investment gains and losses with what your stomach can handle, knowing that we are not trying to keep from vomiting, but we're actually trying avoid chronic mild nausea.

Diversification is about knowing that in theory the upside is wonderful, but in reality the downside is completely unacceptable.

Diversification is about trusting that scar tissue is a real thing instead of believing it's something that won't impact you.

Diversification is about putting your eggs in different baskets, so that when one basket breaks, gets stolen, or spoils, you have others that allow you to keep playing the game for as long as possible...

Additional Reading

Portfolio thinking by Seth Godin

Easy Money is Money Easily Lost by Ben Carlson

Diversification Means Always Having To Say You're Sorry by Brian Portnoy

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34 | Patient Investing, Part 6 of 7: How Long is "Long"?

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32 | Patient Investing, Part 4 of 7: The Ceiling is the Roof