Long YOU, Short the Crowd

"To be a light to oneself is not to follow the light of another, however reasonable, logical, historical, and however convincing." ~ Jiddu Krishnamurti

Uncertainty, and its companion, volatility, abounds in financial markets lately. There exists a stark tension between bullish and bearish sentiments -- a cross-current of optimism and pessimism -- a struggle between the opposing long and short position strategies for stock investing.

Going "long" a stock (or security) is when you buy it in expectation that it will go up in price over time. You are bullish. Going "short" a stock is when you expect the price of the stock to decrease. You are bearish.  To short a security, you borrow it from a broker and sell it, with the understanding that it must later be bought back, hopefully at a lower price, and you'll keep the difference (profit) between the higher price and the lower price.

In life, it is prudent to long yourself and to short the crowd. This gives meaning to the phrase, "don't sell yourself short!" 

Selling yourself short means you have low expectations of your personal development and potential.  Quite the opposite, you must have high expectations of yourself and low expectations of others. This is a bit different, however, from expecting (or hoping for) yourself to succeed and others to fail -- it is placing yourself, rather, in the best position to succeed, with little dependence on the success or failure of the crowd.

You are your greatest asset, and thus your greatest and most important long-term investment.  It is prudent, therefore, to form and possess financial (and life) philosophies accordingly:

The Crowd is Untruth

If the Dow Jones or S&P 500 index (the crowd) is falling to new and recent lows, does that mean your investments are too?  If the world economy is in decline does it mean your personal economy is also in decline?  If the answer is 'yes' to both questions, you may be selling yourself short or too "long" on the crowd (or both).

Be (and buy) your own stock

Whether you are self-employed or not, you should view your actions as representations of Your Name, Inc.  When making a decision, ask yourself if the result has potential to raise your value -- to increase your stock price.  This need not be entirely a financial philosophy.  Even in personal relationships, everything you do or say has potential to affect your value.  Everything you do is a deposit (or withdrawal).  In order to receive, you must give -- in order to increase your own value, you must provide value to others (see Law of Attraction). 

Think of your actions (both great and small) as incremental steps in increasing the value of your company stock.  Be a perpetual "long-term investor" in yourself and buy your own stock!  Insider buying attracts outsider buying.

Have Illusions -- Not Delusions

To a degree, everyone is an illusionist.  This is not necessarily a bad thing.  Illusion, as distinguished from an outright lie, is simply influencing the perception of others, hopefully in a positive, win-win fashion.  Examples of positive illusions include well-written (and truthful) resumes, unbiased financial plans, blogs providing useful information, or simply a strong, positive attitude.

Illusion, however, can become negative, especially when the illusion becomes distorted to the degree of delusion: Pride becomes hubris; confidence becomes megalomania.  The immediate example is that of big business executives; however, delusion can occur in individuals like you and me.  The dreamer, entrepreneur and creative artist in you can easily overcome the realist and quieten the critic.  As Walt Disney demonstrated, learn how to place yourself in the role of the dreamer, the realist and the critic. 

Strike a balance: Digging for gold & Selling shovels

Digging for gold is aspiring to be the one-in-a-million success story; selling shovels is providing a product or service that helps others dig for gold. Either or both can be driven by greed or passion; and self-awareness is required to prevent the potential for the damaging delusions of grandeur.  A modern example is professional blogging.  Like the California Gold Rush, the great fortunes of a few, by means of something that appears quite easy for anyone to accomplish, inspires hundreds of thousands of people to follow the same path.  How do bloggers make money (and lots of it)?  Darren Rowse, of ProBlogger, made $72,000 in one week with his blog; but this is extremely rare.  Why is he so successful?  Because thousands of bloggers aspire to make big money (like him) with their blogs and he provides the means to do it on his blog!  He sells shovels!

Focus on what is within your control

This idea also lends itself to investing in financial markets. Millions of people depend almost exclusively on the stock market as the primary means of building wealth. This is not necessarily a mistake but the sole reliance upon the stock market, something outside of your control, for financial growth and income can be a dangerous pursuit, especially if the timing (or luck, depending upon your choice of wording) is poor. Geo-political and macro-economic conditions do not decide to improve, just for you, in the last few years of saving and investing before a particular objective, such as retirement, is reached. No matter how diversified your investments, if all of your money is in capital markets, you are not truly diversified (see "The Crowd is Untruth" above).

If you place yourself in a position that relies heavily on the success of others, you have decreased your control over the outcome. Perhaps the most extreme example of this can be found in the tragedy of Enron and its employees. They not only worked for Enron but many placed their life savings in the company, which effectively placed their entire financial livelihood in the hands of one company (and just a few company executives). Conventional wisdom is to keep a limit of 20 percent of your savings invested in company stock of your employer. But how smart is "conventional" anything, as applied to individuals? My humble opinion is that, unless you are a primary owner, you should have zero percent invested in the company for which you work.

"Lend yourself to others, but give yourself to yourself." ~ Michel de Montaigne

The purpose of this post is whatever you wish to make it; however, my intention is not necessarily to inspire you to start your own business but to inspire you to act is if you are your own business -- your name and what you do is your brand.  The greatest investment is you and the greatest potential return on investment (ROI) will come from activities created and implemented by you, even if your objective is not financial (meaning provides a greater "return" than money).

Place yourself in a position to succeed in any environment. You do this by finding ways to depend as much on your own skills, motives and productivity and as little as possible on the success or failure of others.  Most importantly, success is not defined by monetary means alone.  You place yourself in position to succeed when you love what you do.

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Related:

Dogma Deconstruction & Abstraction Subtraction

Thoughts on the Law of Attraction

Hell is Other People

Comments

[Jose Martin]

Great post... liked the 2-3 paras after: Focus on what is within your control.

So true... I manage my own fund... and trust me, its no easy thing... though i did make a lot of money from the market, its not something that most would like to do for a living... warren buffet an exception!

[Kent @ The Financial Philosopher]

Thanks, Jose!

An investor, of course, cannot control the markets but they can control their exposure and savings rate.

I've made the most money by buying heavily when the crowd is moving in the opposite direction. The same can be said about selling when the crowd is buying heavily.

With regard to Buffett, this is buying when others are fearful and selling when others are greedy...

Thanks again...

Kent

[Farouk]

that's a very interesting combination of personal development and finanace :) very nice article

[Kent @ The Financial Philosopher]

Farouk: Prudent financial behaviors are rooted in prudent life philosophies, which is the thread running throughout the themes here at TFP.

Thanks for the comment...

Kent

[Mariusz Skonieczny]

What a great article. It really makes you think. If you don't invest in yourself, then who will?

[Kent @ The Financial Philosopher]

Mariusz:

I am happy to have provoked thought. That is my goal with each post.

You are correct in asking, "If you don't invest in yourself, then who will?"

Investing in yourself, however, can inspire others investing in you. It's not different than insider trading. If others see you investing in yourself, they will want to do the same...

Kent

[Thanks]

Sincerely this is one of the best articles I ever read in my life.

Looks like you put my thoughts in order, and even you put a Krisnamurti who was quite great thinker (and trustworthy).

Thanks

[Kent @ The Financial Philosopher]

@ "Thanks"

I am humbled by your generous compliment! Krishnamurti is one of my favorite thinkers and spiritual leaders.

If you haven't already seen it, you might like the web page I created on his bio and quotes:

http://financialphilosopher.typepad.com/thefinancialphilosopher/jiddu-krishnamurti.html

Here is one of my favorite quotes of his:

"Concentration is another invention of thought. In school you are told to concentrate on the book. You learn to concentrate, trying to exclude other thoughts, trying to prevent yourself from looking out of the window. In concentration there is resistance, narrowing down the enormous energy of life to a certain point. Whereas attention, which is a form of awareness in which there is no choice, a choiceless awareness, all your energy is there."

Thanks again "Thanks!"

Kent