Don’t let fancy talk cloud your judgement

Today it’s easy to get caught up in abstract stuff that clouds our view of reality so that you lose track of life as it really is, or would be if modern frills and frippery disappeared. Some financial examples:

  • Beta – why should the risk of an investment be measured by how volatile its price has become because of volatile buyers and sellers? Corruption, poor products, poor staff, lack of competitiveness are real risks.
  • Asset allocation – don’t buy horrible things (like bonds of countries that are close to bankruptcy) just because there’s an economic theory that says you should. This is your hard-earned money you’re talking about.
  • Leverage – don’t take on debt just because someone tells you that you should. Chances are their income is linked to doing so.
  • Technical analysis – people have made lots of money this way. Don’t get sucked in. Stick to creating and paying for real value and look for investments you understand.

What else can you do?

  • Cultivate common sense. Spend time with people who have it, read people who have it, read the book of Proverbs.
  • Learn to step back and get the bigger picture.
  • Develop the habit of looking through the eyes of someone who lived a thousand years ago (this can be helpful for the MUCH bigger picture).
  • Don’t be impressed or intimidated by technical speak. If it doesn’t make sense to you, think first that there’s something wrong with the content. Don’t blame your brain until you’ve considered that you might be reading rubbish.
  • Read in different areas and from different eras. This can help you to see your finances from different angles.
  • Don’t be greedy and don’t be afraid to be conservative. And some people might call your ‘conservative’ crazy. You won’t go bankrupt if you pass on something that could be great but you couldn’t get comfortable with. You won’t be forced to work in a salt mine because you didn’t use enough leverage.
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