Have you ever stopped to ask yourself why you are investing?
Author and motivational speaker Simon Sinek speaks and writes about the importance of finding your “why.” Every person or organization knows what they do and how they do it, but very few know why they do it. And profit is not a reason why; that is a result. When Sinek speaks about why, he’s talking about purpose. The idea is that in order to live a truly meaningful life, you need to focus on your purpose.
This isn’t a concept that started with Simon Sinek. We can go back to Abraham Maslow and his 1943 paper, “A Theory of Human Motivation,” in which he lays out his hierarchy of needs. Above food, shelter, safety, love, belonging, and self-esteem is the need for self-actualization. In other words, there is a need to find purpose in your life.
How does this apply to investing and the stock market? It doesn’t mean that you can or should find meaning in your life through the stock market, but the stock market does allow you the opportunity to participate in something meaningful. You can contribute to the world, and that in itself can be inspiring.
It bothers me when people treat investing as a purely intellectual, numbers-driven academic exercise – and I’m a numbers guy. Investing isn’t just a game. It’s partly a game (more on that later) but not entirely a game. Your decisions have real-world consequences, both for you as an individual and for society as a whole.
For me, it’s simple. If you are fortunate enough to have capital or aspire to have capital, what you do with that capital matters. Yes, the goal of investing is to make money over time, but it’s not just about putting your money in a place so you can get the most back; it’s about building wealth while creating and influencing a future that aligns with your values.
I look at capital allocation like voting – it gives you a say in creating the future. But as our markets have evolved to become reliant on tech, data, and mechanization, values have been left out of the equation. We’ve forgotten how we can use the capital markets to express our values. This used to be an important consideration when selecting investments, but today it’s rarely even part of the conversation at all.
Today, it’s all about machines, quants, analysts, and number crunchers, which only further consolidates influence and choice in institutions while almost ensuring that the individual investor can neglect personal responsibility when choosing an investment.
One reason this has happened is because of the way index funds have evolved. Individual investors don’t want to do their own investing, so they delegate that responsibility to companies like Vanguard, Fidelity, BlackRock, and Goldman Sachs.
These companies have done a great job of eliminating much of the behavioral pitfalls that overwhelm human weakness, but this has led to a consolidation of power and influence because everyone is in the same funds. The markets have become brittle, herd-driven, and lacking in diversity and depth because everyone is investing in the same thing.
Which brings me back to the issue of how investing is, in part, a game.
When I use the word “game,” I use it in a technical and mathematical sense. Investing is, in part, a very complex game like chess or go. There are plenty of rules, lots of data, and there are tried and true strategies for winning.
As investors, we can’t ignore this game side of investing. We have to equip ourselves to hold our own in the investing game. We can’t allow ourselves to fall prey to the investing version of the simple tricks and traps that experienced chess players use on beginners.
This is why we need risk management. Risk management keeps us from getting checkmated out of the game of investing. But risk management isn’t the end. It’s the means. The end is your purpose.
All great investors have a purpose that transcends the game – and they know that they need risk management to always ensure that they can live to fight another day.
What’s your purpose? What’s important to you? Do you have personal expertise in a particular industry? Do you admire the products, ethos, or management practices of a company? That can influence the stocks you chose. Then the success of that company directly relates to your contribution, and believe it or not, that can be just as fulfilling as the returns you’ll see. I’ve experienced this, and so have my clients.
When I’m creating my list of possible investments, the first thing I ask myself is, do I care about this and does it align with my purpose? Privacy, for example, is a big issue for me, which means Google, Facebook, Netflix, and Amazon are all out. These companies clearly don’t value privacy the same way I do.
As you enter the holiday season, it’s a good time to think about your purpose – your “why.” Don’t ever forget: If you’re an investor, you’re an influencer. By giving a company your capital to deploy, you literally have a say in whether or not it will be successful. You are contributing to something a lot bigger than yourself.
Invest in your “why” and use risk management to survive and thrive.