I was once told by a fellow trader that it was far worse not to make more money, than it was to lose money. Obviously, this makes it quite clear that greed far exceeds fear when it comes to the way traders look at risk. But, is there also a further lesson here that gives us insight into the human psyche when it comes to investing?
The fact is, every investment we make has an element of hope in it. If we didn’t think that the investment we just made would make money, we would clearly not put it on. Note, investors in the German Bund markets may be the large exception here, as they are paying the government to lend them money, but this is a topic that will be discussed in a separate post. Hope is the reason we make risky investments in small or emerging market equities. Hope is the reason we buy bitcoin and even lottery tickets. We do it because the thought of doing one thing and having our dreams come true is very basic to the human spirit. It keeps us going, and allows us to fantasize about being lucky or even distract us from other things we would rather not think about.
I truly believe that all of us structure our investments with hope in the back of our mind – maybe, just maybe, if things work out there is that one part of our portfolio that can make us a lot of money, even if all other things go wrong. It is the reason we have such a thriving derivatives markets, it is the reason that we have so many people running around selling us ideas of making lots of money, it is the very reason that we have, and will continue to have, innovations such as cryptocurrencies or other new technologies. People will buy in for many reasons, but ultimately, it is because they have hope.
And so, as it is the season of good spirits and family festivities, let us also embrace hope as an essential part of our investment allocation. Let us dream of better things, let us warm our hearts, inspire our minds and let us look for the most risky investments we can find. For as long as we don’t put all of our money into the next big thing, there is nothing better than adding a bit of hope into our lives. Merry Christmas and a hopeful New Year!