Is Old School More Modern than New School?
A wristwatch, made with gears, springs and levers, tells you the time; the day of the week; the month; even the year of the leap-year cycle we’re in and current moon phase. But that’s it.
The cell phone can do just about anything. Among other things, it can tell your fingerprint from over 14 billion others and it always knows where it is anywhere on the planet.
However, the cell phone only works for a limited time before it either runs out of power or becomes outdated. It must be constantly maintained in order to work well. If you don’t update it, you wind up using apps people no longer use; you wind up with a very expensive machine that can make calls and tell time.
The wristwatch only needs a cheap battery, or just the sunlight or movement, to work. As long as it’s sunny and / or you move once in a while, it works.
The watch is better because it’s reliable and timeless. It’ll work just as well in 100 years as it does today. The cell phone is curve-fit for short-term performance; providing you with a very pleasurable experience, but for a limited time.
In investing, we can choose either strategies built on timeless principles or ones designed to profit from specific scenarios.
Timeless old-school strategies diversify, trade with the long-term trend, manage risk and require discipline. Modern strategies attempt to predict future trends, outguess the markets, make all-in bets and try scalping every price wiggle; designed not for robustness but for guaranteed short-term profits.
A great example of a modern strategy is highlighted in The Big Short. It showcases the guys who made one huge bet on an event they were 100% certain would happen. In this case, they were right, but because of their massive bet, they were on the clock. They only had a short window of time to cash in otherwise they would’ve went broke. This strategy cannot be implemented at all times because massive opportunities like shorting sub-prime don’t occur all that often. They’re only useful once in a while; trouble is spotting the opportunity before its too late.
The allure of modern bet-it-all strategies is real. It feels great. You can make a ton of money without wasting much time. It has a lottery-like feel and payout to it. Like the lottery, most people are better off not playing this game.
Timeless strategies are built to survive; to withstand adversity and long periods of stagnation where few opportunities exist. They don’t require specific events to occur within specific time periods in order to perform well. They don’t require you to be right all the time, but keep you in the game so you can make a bet when an opportunity comes along.
Most of you will always prefer the modern way. I get it. It’s in our DNA. Selling survival, patience and long-term discipline is tough. No one wants to hear it. But they just might be the things that give us what we ultimately want — financial security and freedom.
Find Michael Melissinoson twitter here or at his blog: www.michaelmelissinos.com