Risk tolerance comes with experience. And with experience comes confidence .People who have never invested in stocks, will find index funds risky. People who have never invested in real estate, will always think it’s overpriced.
So as you move up the risk reward ladder , good experience with higher confidence keeps raising your risk tolerance.
A person who has successfully built a business have a different view on entrepreneurship and hence they might be interested more in individual stocks or even private equity, Angel investing etc. They know right investments in businesses can compound much better than index funds. But of course it can also do other way around if a lot of bad investments are made.
How is see this is following
index funds is for passive investor who doesn’t know much about individual businesses, Industries, asset valuation etc
other investments are for experts with knowledge and deep understanding (including shorting a company)
Berkshire wouldn’t be Berkshire if they were buying index funds. But they are experts in what they do.
At least with private equity funds I would understand the volatility argument, there’s heavy volatility smoothing going on with their quarterly numbers.
I think another aspect to this is being in control vs giving it away. My ex boss told me many times “I wouldn’t ever work for someone else”, probably they see index investing as giving away too much to chance.
Could be.
But I still think it’s mostly about returns. People who have excelled in building businesses are not satisfied with average returns. They like more returns and have means to achieve it. It doesn’t mean they would always succeed but that’s the mindset
Even when it doesn’t come with outsized returns, when you get accustomed to risk, it has some of an adrenaline effect that carries some level of addiction with it. Risk isn’t less risky and taking them isn’t wiser. You aren’t more skilled at handling it or, at least, not in a meaningfully significant way (that is, you may be hit less often but hits still pack their whole wallop and you can very much still get hit) but you’re just used to have pretty risky situations as your basic level of activity.
Different people are probably wired differently, that’s at least what it’s done to me professionally, dealing with situations that couldn’t be solved and having to pick between bad and worse to the point where what others would consider awful was simply labelled “a bad that I have to take” because the alternative was worse.
It’s not something to be after, there’s nothing aggrandizing in taking risks that are not required to reach our desired outcome.
I think it’s the brain wiring, I’ve mused that if I was them (I’m not, and won’t be) I’d probably put a good 30% of that money to sleep forever in VWRL or equivalent, 30% in fixed income (permanent bond ladder) and 30% in short-term income like a MMF. Just to avoid leaving money on the table.
Maybe play with the last 10%, let’s not forget these are people who were already conventionally well-off for many years, with all financial problems solved before becoming very rich.
That won’t make them Bezos or Buffett or some oil sheikh or Russian oligarch, but they couldn’t make that anyway so why play at all after you’ve won?
Anyway, that’s how I put myself to sleep some nights
I know two guys who are successful entrepreneurs. Both of them could not write a letter. They were both not good at school and I’m pretty sure, they don’t know about exponential growth.
They are smart in their own way. They know how to sell stuff, they are good leaders, they are very good with people. They can probably convince you that life is better withouth any cloths, you would give them your cloths and pay them money for the good tip. And they grab an opportunity, when they see it.
The betting markets haven’t meaningfully (if at all) reduced Trump odds of winning. My own perspective is that the odds of the Dems winning the election have increased significantly as the issue of Biden’s age won’t be top coverage anymore, which will leave room for the Dems pushing on Trump and the Supreme Court recent decisions. Also, Kamala Harris (or whoever becomes the nominee) will have time to campaign full time while Biden had to be President still.
One thing I would … well, ahem, bet on is that markets dislike uncertainty and until the Democrat nominee is known there will be uncertainty and thus … volatility … the option seller’s best friend!
I know, kind of a stepchild sub-topic for this topic, but I expect to be selling way more cash secured puts in the next couple of days/weeks than anticipated.
In the mean time, I recommend that everyone listens to Hey Joe until this is over you are experienced.
On topic of the US election, no changes for me. Keeping buying. Sad AF state of affairs when you see the overall abysmal quality of politicians worldwide.
Pretty much what I speculated could happen. Small upside on big tech/ large growth, after taking a hit before and value now taking a hit, incorporating a little higher chance of Dems winning and small reversion of the trend of the last two weeks.
May I ask what was your plan when doing this? Was it to lock in the gains? I have a friend who is super big on crypto who always says “nobody lost by taking profits”, but keyword here is “crypto”, so it’s prudent to pull the money out when there’re some good gains.
Still, you may describe a big opportunity cost, but you didn’t lose and that’s something.
Correct. I booked in about 50-100% gains in fear of “everything going to shit very soon”, then I lost out on a solid 2-5x on some titles in the next 4 years.
Nothing lost, still, Cpt Hindsight got totally pissed off
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