Reflection: What do Investors really seek?

As an investor, if you were offered an average rate of return, of say 8% annualized, in exchange for lower volatility and lower relative stress, would you accept this offer? 

Or, if you are a trader with a passion for active investing, would you still be a trader if you were paid only a modest salary with a small cost of living increase each year, and no chance of bonus?  How about if there were no money involved at all?  Would you still enjoy it?

I'll end my week-long run of Uncommon Wisdom with the same philosopher it began, Blaise Pascal (1623-1662):  

A given man lives a life free from boredom by gambling a small sum every day.  Give him every morning the money he might win that day, but on condition that he does not gamble, and you will make him unhappy.  It might be argued that what he wants is the entertainment of gaming and not the winnings.  Make him play then for nothing; his interest will not be fired and he will become bored, so it is not entertainment he wants.  A half-hearted entertainment, he must delude himself into imagining that he would be happy to win what he would not want as a gift if it meant giving up gambling.  He must create some target for his passions and then arouse his desire, anger, fear, for this object he has created, just like children taking fright at a face they have daubed themselves.

So which is it:  The "entertainment of gaming" or "the winnings" that you seek?  Perhaps these market conditions will have many investors and traders seeking the alternative choice of passive investing...

What are your thoughts?

Comments

[Aaron]

I sometimes wonder the same thing about these companies. Short term tactics while pronouncing long term strategies is not a recipe for success. Have organizations finally learned that everything needs to line up? I hope so.

[Kent @ The Financial Philosopher]

Aaron:

The true lesson learned for individuals is that entities or groups of people do not learn from mistakes.

Markets move through cycles because human nature never changes. We can not control the herd but we can control ourselves.

Thanks for your thoughts...

[Frank Farbenbloom]

My sense is that satisfaction comes from having a challenge to overcome. It is even more meaningful if one can be part of a cooperative effort.

Whether it was overcoming the elements on a wilderness camping trip or working with a crew of people to overcome the deadline challenge of converting an empty exposition hall into a wonderland of interesting booths in a limited time, there was always a great "rush" when the goal was achieved.

Today as a retired 74 year old. I am ready to accept the 8% return and channel my daily activities into less stressful "struggles". However I cannot imagine a life without some daily challenge.

So the answer has partially got to be where one is in life.

Thanks again for another thought provoking post.

[Cedric Yau]

Most "investing" is really Speculation--and you can divide this into passive speculation and active speculation. Turning investment into a numbers game a la Markowitz has just made it easier to participate to attain a positive return without really understanding the fundamentals of where capital is really being deployed.

Real investment comes with the desire to create capital and wealth, not just the ability to profit. The real investors like Warren Buffet not only provide capital to their portfolio companies, they influence management. Real investors are able to add value by getting executive to ask the questions of how to efficiently deploy the capital they control. How to improve efficiency to control costs and improve margins? How to increase revenues and drive efficiency? More importantly, investors such as Icahn work to ensure that the right managers and leaders are there to help grow the business and/or improve profitability.

[Kent @ The Financial Philosopher]

Cedric:

Great points! There certainly are "investors" out there who are trying to build something useful, either for themselves or for others...

[Kent @ The Financial Philosopher]

Frank:

We all certainly have some kind of "challenge to overcome," as you state.

As you imply, the answers to most questions can be led by two words: "It depends..."

Thanks for sharing your thoughts and kind words...