CONFORMIST OR CONTRARIAN

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The end of one year and the beginning of the next is a great time to examine what you think/believe. It is a great time to carefully review a plan of action, decision making process, or an investment thesis.

The Stoics recommend interrogating yourself. This process of deeply and intentionally inspecting your beliefs is always a worthwhile activity. 

After all, nobody can be right 100% of the time. Although I never like to admit it, I know that I am probably wrong about some of the things I believe.

There are some questions to answer when you are inspecting your beliefs and interrogating yourself.

1/ What am I missing? 2/ Where am I wrong?3/ How can I or my business be better?

Putting yourself up for review is difficult. Yet, it can create nearly unmatched opportunity and insight. What you discover from carefully scrutinizing a plan of action, an opportunity in your business, or a set of beliefs can become a fundamental component of the future.

Just because something is difficult doesn't mean it is not worthwhile. Sometimes, the difficult path provides the highest ROI.

In order to deeply inspect what I believe, I have included a list of beliefs/viewpoints of my own below. Some will generally be in line with the consensus point of view, and the rest might be considered a more contrarian stance.

The end of the year seemed like a logical time to take part in this activity and share these different frameworks.

Perhaps it will serve as inspiration to examine your own thoughts or spark a conversation about what we believe. If you agree or disagree with one of the points below, email back to tell me where I am wrong or what I have missed.

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CONFORMIST VIEWS

These points will not be novel or groundbreaking but will hopefully serve as a great reminder. Generally speaking, each will fit in with the broad opinion of society as a whole. 

Ironically, the most dangerous beliefs are the ones that are broadly accepted. When the vast majority of people believe something to be true, there can be serious fallout if it is not actually the correct point of view.

1/ Time is the most important factor in investing.

Compound growth is a key driver in growing your wealth. Put simply, compound growth is where you earn returns on the original amount of the investment and on returns generated previously.

The investors who start early will have a serious advantage. 

The “What are Your Dollars Worth Today?” chart has made several appearances through the months/years, but it is the basis of an incredibly important financial concept. Your time has immense value.

Warren Buffett is an incredibly talented investor and the ultimate example of the power of time/compound growth. He has created great wealth for himself, his family, and the shareholders of his company. 

This is Buffett’s net worth charted across the course of his life/career.

This chart is a perfect example of upward-sloping compound growth. By all measures, he was a successful business owner and investor by the age of 30. Initially, his wealth and success is impressive but far from prolific.

Yet, the effects of time and compounding make him one of the wealthiest individuals in the world today.

Even Buffett himself attributes much of his success to luck and time.

Chances are excellent that these two factors will also play an outsized role in your financial life too.

2/ In order to be wealthy, you must own something.

There are definitely folks who create wealth through systematically saving and investing. This is the standard path to wealth (and probably the simplest).

Wealthy people are owners.

You will find equity in a business, real estate properties, or seriously large investment balances on nearly every wealthy person’s balance sheet and/or net worth statement.

It may be more risky to own these types of assets, but a thoughtful owner uses the cash flow of these assets to generate even more wealth.- Owning something gives you control and freedom to make decisions with your wealth.- It allows you to diversify your investments beyond the stock market and have potential for higher returns. - You can use these assets to create additional leverage and eventually other income streams.- Owning something gives you the opportunity to pass the business and/or property (and thus the wealth) to your heirs.

3/ Your spending should be a function of prioritization and satisfaction maximization.

There has been a huge amount of research on how our spending habits affect general satisfaction in life.

It is easy to be side-tracked by all of the chances the world conjures up to spend money. There are endless opportunities to practice consumerism. At every corner, you will see an advertisement, “Buy this or that, and you will be happy!”

If buying consumable, material things provides any level of happiness, it is short-lived. Research shows that spending money on experiences creates long-term satisfaction. An experience simply can do things a product/good cannot.

- Experiences create memories that last a lifetime. Traveling to new places to enjoy a local culture or  taste new cuisines are memories that will always be with you.- Experiences encourage personal growth. Investing in personal development, going on a journey, or taking on a new challenge can help you develop new skills, gain valuable knowledge, and build confidence.- Experiences create opportunities for meaningful connections. Regardless of the type of experience, other people are nearly always involved. Whether friends, family, or new faces in new places, experiences can help to build strong relationships. - Experiences can bring joy. There’s something special about actually living and experiencing something first hand that can bring a lot of joy and happiness. (And not just the short-term variety.)

CONTRARIAN VIEWS

Nobody can be a contrarian in all phases of life. Sometimes, even the contrarian point of view is more mainstream than you think.

Also, there is “wisdom of crowds” or something to be gained by following the consensus. Always doing this can be a bit boring though. Every once in a while, it is good to go against the grain.

These viewpoints may go against the grain of broad public acceptance.

1/ The decision to buy a home is a lifestyle-based choice, not a financial one.

Many people endlessly cite the financial benefits of buying a home without recognizing the true cost of ownership.

The interest to pay down a home loan, property taxes, and maintenance expenses add up quickly and are difficult to estimate. The one-off expenses like replacing a roof, repairing water damage, or updating components of the home are also costly.

This does not mean that buying a home is a poor decision. It can easily be the best decision for some and a great outcome for many people.

The basis of this viewpoint is that purchasing a home should be based upon your lifestyle and needs, not attempting to maximize any financial outcome. 

If you have small children and would like to have more room or a backyard, buying a home makes tons of sense. If you have an opportunity to purchase the home of your dreams and expect to live there for many years, making the move to purchase it will create a great deal of happiness.

These reasons are not financial but intensely personal. In these instances when there is a lifestyle-oriented, unique reason to buy a home, it makes perfect sense to do so.

If the reason to buy a home is related to making “a financially optimal decision” at the direct push of family/friends, it might make sense to hold off.

Buy a home when it is right for you and your family, not when others think it makes financial sense.

2/ Budgeting is overrated.

There is timeless wisdom in the phrase, “Live off less than you make.” 

In essence, this means that you will carefully take account of what you earn each month/year in income and then make sure to spend less than this amount.

Although a budget is a useful tool, it is essentially the minutiae of your financial life. It requires immense dedication to budget each and every month. When you reach a certain level of financial success, budgeting has a limited ROI.

You earn the right to not budget by regularly displaying discipline. If you are the steady hand at the helm of your financial life, budgeting becomes optional for several reasons.- Budgeting can’t account for life's surprises. Any unexpected expenses derail a budget and come when you least expect them. Budgeting doesn't predict when this will happen, leaving you feeling frustrated and overwhelmed when something doesn’t go as planned.- Budgeting can’t account for your personal taste/lifestyle. A cup of coffee or lunch out won’t thwart your entire financial plan like some so-called financial experts might say. You might want to enjoy certain luxuries or experiences that don't fit into a typical budget. If you have earned the right to not budget and want to enjoy certain parts of life more, you might consider doing away with the trivial specificity of a monthly budget.- Budgeting takes a lot of time to budget and keep up with the details. It can be tedious and time consuming. If you carefully account for each and every expense, the process of creating a budget could take hours. If you have a relatively stable financial life and feel comfortable managing your expenses, it may make sense to track your expenses and cash flow instead of budgeting. This act alone could save countless hours each month.- Budgeting can be too restrictive. Sticking to a strict budget can leave you feeling deprived. There are few things worse than missing out on a spontaneous opportunity or experience simply because the budget does not permit any variation.

Budgeting can be a necessary evil for some, especially in certain stages of life or for short sprints. Because of its significant long-term downsides, certain people could benefit from doing away with the hassle.

3/ Holding extra cash can be a wise investment strategy.

With inflation making headlines across 2022, many people have said that holding cash is like burning money.

“When your checking or savings account is only earning a few percentage points in interest and inflation is 7+%, you are losing money hand over fist!”

Perhaps you, like me, have heard this sentiment expressed recently.

From a truly technical perspective, this point of view is correct. When the rate of return earned on an investment is lower than the inflation the real value of your dollars is decreasing.

Yet, this point of view fails to consider other factors beyond simple math. There are several benefits to holding cash and doing so can be a wise investment strategy.- Holding cash can provide some sense of comfort, knowing that you have extra funds to use on “a rainy day” or in case of emergency.- Holding cash in your portfolio can provide a cushion to take advantage of market dips.- Holding cash provides the flexibility/liquidity to buy a cash flowing business or piece of real estate when or if the opportunity presents itself.

There are definitely distinct advantages to keeping cash on hand, even in an inflationary environment.

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TL;DR

Interrogating yourself and deeply inspecting what you believe can provide serious ROI.

The future will be full of potential when you and your business can effectively adapt any belief or plan of action.

Whether it is a conformist or a contrarian point of view, it is worthwhile to dig deeper and determine whether the belief is actually correct/optimal or not.

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What are some of your conformist and contrarian views? Do you have any strongly held beliefs about investing?

Feel free to share your thoughts as a ‘Reply’ or share this post on LinkedIn with your beliefs.