Broker Check

Chasing a unicorn

June 15, 2020

A long time ago a mentor explained something very important to me.  If wealth and being financially set was about a “product or investment” that one could buy, then we would all own that product or investment and people wouldn’t need a financial planner or financial advisor. 

 

The Holy Grail in investing, if there was one, is an investment that provides high returns, greater than “the stock market”, with minimal risk of loss.  In other words, a unicorn. 

 

Why are we so attracted to these investments, the “unicorns”, even though they are too good to be true? It’s because we get skill and luck confused.  In the stock market, short-term results are dominated by uncertainty, luck and random chance events. But, for some reason when we experience good performance, we tend to attribute it to skill, even in situations that are highly unpredictable. We may eventually recognize that such performance was due to luck (right place, right time) - but by then that lesson may have cost us (wrong place, wrong time).

 

Risk management isn’t about finding the unicorn (because you and I both know that it doesn’t exist). It is about having the appropriate allocation for you.  It isn’t about owing the “best” investment. It’s about having the discipline to stick with your plan when times get tough.  It’s about the relationship and conversations with your advisor about your goals and your future.  AND it’s about your plan. 

 

There will always be something that looks more attractive and “shiny” than what you own. If it seems too good to be true, it probably is.  Investing is a constant battle of tradeoff such as Risk/Return, Feeling/Rationality, Luck/Skill and Cost/Benefit. Let’s continue our conversation about your plan and how to best pursue your goals. 

All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.