I once had this Econometrics professor back in college. He was young, Brazilian, super intelligent, and had an insane pleasure in messing with our heads.
Once, he gave me the most stressful multiple-choice exam ever. Here’s what went through my mind while I was doing it:
- Question 1: The answer is B. Easy peasy.
- Question 2: The answer is B. No problem.
- Question 3: B again. I’d better double check that just in case.
- Question 4: THE ANSWERS ARE ALL LINING UP. FOUR Bs IN A ROW. THAT’S TOO MANY Bs. ABORT.
- Question 5: Another B will probably unlock some ANCIENT BABYLONIAN HEX THAT WILL CURSE ME AND MY DESCENDENTS WITH SWEATY ARMPITS FOREVER
- Question 6: Maybe my professor is some sort of weird Amazonian witch doctor
- Question 7: Maybe I’m in an alternate universe where all choices are answered with a “B”. My GongCha server will ask me “How sweet do you want your tea? B) 20%, B) 40%, B) 60%, B) 80%, or B) All of the above?” Just like how “Aladeen” is used for everything in The Dictator.
And so it went on. It didn’t matter that I studied my butt off for the exam, the fact that every answer was a “B” completely threw me off. I kept second-guessing myself: I’d go back, rub off an answer, and scribble in a C. Then I’d change it to an A. This happened like 27 times during the exam.
And yep, that mischievous son of a bitch actually did set “B” as the right answer. For all 50 questions.
How to Stress Out A Nobel Prize Winner
You know what else is stressful? Trying to beat the market, that’s what.
Imagine you’re the most brilliant money manager ever. You’ve won four Nobel Prizes. You’ve created the ultimate active investing strategy that’s guaranteed to beat the market and make you very, very rich. Kind of like Bradley Cooper in Limitless.
Now try executing it. You’ll probably make a lot of money in the good times, and hit some occasional rough spots. That’s expected – No strategy works all the time. Heck, even the legendary Warren Buffet has some bad days.
But what if you hit a really long dry spell? What if you found yourself not making money for 1, 2, 5 years, while seeing all your rivals surge ahead of you? You know your strategy is sound – you’ve done all the research – yet you can’t help but wonder if market conditions have changed.
That’s when most people will start to second-guess themselves and cave in. They’ll change their answer from B to C. And they’ll get screwed. Especially when the right answer was B all along.
It doesn’t matter what that strategy is – value investing, technical analysis, arbitrage, whatever. If you’re trying to beat the market, you’ll always be stressed out during the bad times. Why? Because you’ll always have that nagging fear that maybe, just maybe, your well-thought out strategy just doesn’t work anymore.
Why Passive Investing Eliminates Stress
There’s a less stressful way to invest: It’s called passive investing. When you invest passively, you stop trying to beat the market. Instead, you’re trying to mimic it, at the lowest possible cost. (New readers – I previously wrote a couple of articles on passive investing. If you want to find out more, you can check them out here, here and here. There’s also a great introductory video on passive investing you can watch here)
When the market skyrockets, so does your portfolio. But here’s the cool part – even when the market dives and takes your stocks along with it… your strategy is still working perfectly.
Why? Because, by design, you weren’t trying to beat the market in the first place. As long as your portfolio closely mimics the market, everything is going according to plan (Try saying that while sitting in a poofy leather chair and stroking a white cat, followed with a mandatory “muhahahahaha”).
As long as your portfolio follows the market, you shouldn’t worry about where the market is going tomorrow. That makes investing a heckuva lot less stressful.
Over the very long run (think 20-30 years), the stock market remains the undisputed champion of all assets. It’s literally walloped the performance of everything else. Follow it closely, and you’ll get those returns as well in the long-run.
Your No-Stress Financial Life
Look – you’re young, and sexy, and awesome. You shouldn’t be wasting your life staring at squiggly charts on your phone, mentally willing your stocks to move in the way you want them to.
You should be focusing on giving your best self to your loved ones, your career, and your life. You should get out there and start a business. Cure cancer. Consult for nonprofits. Help people. And on weekends, post hilarious tweets about #gameofthrones.
What you shouldn’t be doing is stressing out over the stock market. Do yourself a favor, and kick stress out of your financial life by investing passively. You only live once.