Synopsis: The latest installment of George Lucas’s 1977 space saga, Star Wars Episode IX, hits theaters next week. In honor of the sure-to-be blockbuster opening, we examine green investing techniques. Not windmills and solar companies, but the investment wisdom of little green men. Okay, just one little green man.
Yoda, the wise, old, green-skinned stoic sprung from the imagination of George Lucas, first appeared in the second Star Wars movie, 1980’s The Empire Strikes Back. As he nears forty years old, most of the Jedi Master’s backstory remains unknown. What planet is he from? What species of alien is he? There appear to be more like him (according to Disney’s streaming space western called The Mandalorian) but how many? And who taught him his jumbled English?
In the decades since his debut, the often gruff, little green guy has solidified his stature in popular culture for his use of the anastrophe, a jumbled sentence structure inverting the normal order of words or clauses. Confuse many, this does. But, don’t let his small stature or quirky speech fool you. Yoda’s wisdom transcends time and space and he is, after all, a teacher. Here then, are eight lessons from the Jedi Master himself, examples of Yoda’s wisdom from a long time ago and a galaxy far, far away... and how to translate them for the modern investor.
📌 Your brain is an imperfect instrument for navigating the modern investment landscape and many of the things you think you “know” are wrong.
Speaking of long, long ago...that is when the human brain became hardwired to perform many of the tasks we ask of it in a hyper-speed world. How can a brain tens of thousands of evolutionary years old keep up? Quite simply, it can't. And thus, it resorts to shortcuts and biases that do more damage than a squad of Stormtroopers.
📌Determine your needs and wants, then develop a written plan to guide you.
Yes, it needs to be a written plan. Vague goals and projections in your head don’t count. Without a proper plan and calculations, you might not fly right through a star or bounce too close to a supernova, but the ending still won’t be pretty.
📌Market timing may feel good, but once you start it requires you to have near perfect timing for the rest of your investing life.
Entering and exiting the market based on research or gut feelings is not one decision. You are signing up for a lifetime of attempts to exit and enter at the “right time.” When agitated by something you’ll sell, buying back (you say) when you feel calmer. If you are scoring at home, that is two decisions you need to get right under emotional duress. Over a long period of time that will not only consume you, it will consume your returns too. According to a 2018 Oppenheimer Funds report “the average investor doesn’t come close to beating the S&P 500 Index and barely outpaces the rate of inflation.” Keep that strategy where it belongs: submerged in the swamps of Dagobah.
📌 Stock market forecasts, an extremely popular activity this time of year, are at best unscientific and at worst outright guesses.
It may seem harmless, but the mere activity of forecasting gives a false sense of certainty and often leads to darker arts like market timing or day trading. CXO Advisory Group tracks the accuracy of finance gurus and pegs the percentage of correct forecasts at about 46%. Yikes. According to the Harvard Business Review, there are six rules for making a forecast and among them is “know when to not make a forecast.” Which sounds like something Yoda would have said, right down to the unwieldy sentence structure.
📌Loss avoidance is a natural human tendency, but your investments will eventually dictate your lifestyle, so choose wisely.
If you aren’t a big spender and are okay living like Yoda did in a dirt hovel with four-foot ceilings and a pest control problem, be as conservative as you want. Otherwise, you need to embrace the opportunities that come from the occasional disturbances in The Force.
📌Speculation is very different from investing. Investing should focus on building wealth or providing cash flow over time and not on what is hot or cold at the moment.
The Jedi are not day traders, crypto currency junkies or distressed debt investors. If you are looking for exotic ways to build wealth and taking on adventurous strategies to do so, you are likely getting no better odds than you would playing chess against Chewbacca (Warning: Wookies are known to rip your arms out if they lose). Leave the gambling to Corellian smugglers.
📌It is perfectly understandable to be angry or fearful during your investment journey but acting on these feelings that will lead you down a dark investment path.
Emotions reduce the cognitive load on our brains by triggering a call for action that is a pre-programmed shortcut. They override just about everything else the brain is doing at the time and they take precedence over other goals and objectives. If shortcuts and overrides sound like the way to get ahead, you may have a future in outrunning Imperial Destroyers and setting records in the Kessel Run. But long-term investing probably isn’t for you.
📌Living longer requires a plan for healthcare spending and inflation.
Okay, most us won’t live a few more centuries but we will live longer than many think. While we can’t build new robotic hands yet to replace the one your father lopped off during a light saber duel, our medical technology is still leaps and bounds better than just twenty years ago. And it will keep getting better during our lifetimes. But all that upkeep comes at a price, and the effect of inflation on services such as healthcare has been much more pronounced in recent years. Having a plan to grow your assets in spite of inflation may be the difference between living out your days in style or as a hermit on the edge of the desert.
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