Luck is a very thin wire between survival and disaster, and not many people can keep their balance on it.
– Hunter S. Thompson
In this week’s Torah portion, it says, “The One Who feeds you manna in the desert… in order to test you.” (Devarim 8:16). The rabbinic commentators all ask the obvious question as to what the test is. According to the Sforno, the test is to see if the Jews would still follow the Torah when they do not have to worry about their livelihood.
Rabbi Yissocher Frand expands on this idea: “Yes, there is a great test in ‘bread raining down from heaven.’ Affluence without effort is a dangerous thing.
It comes with a great amount of leisure time and freedom of action. What do we do with that leisure time and that freedom of action? Do we use our leisure time and freedom of action to taste the forbidden? This is the great test of the manna.
“We are all aware of the test of poverty. We are all aware of the trials and tribulations of being poor. However, says Sforno, affluence also comes with great temptations. It puts a tremendous responsibility on a person. This is the test of the manna, and it is the test for many Jews in these affluent times.”
Luck runs out
A few years ago, I mentioned a fascinating Forbes article written by Ryan Frailich. His topic is “How ‘Resulting’ Impacts Your Personal Finances,” and he starts the article with a question.
“I’m at a bar with a friend, and we’ve each had too much to drink. I schedule a car to pick me up via Uber and leave. Unbeknownst to me, my friend decides he’s fine to drive himself home despite the six beers we each consumed.
“On my drive home, my Uber was sideswiped as we passed through an intersection, leaving me with months of physical therapy. He drives himself home and parks, slightly crooked, in front of his house.
Who made a better decision upon leaving the bar? I made the better decision and had a worse outcome. He made a poor decision and had a positive outcome.
“Put another way, he got lucky, and I was unlucky.”
A bad decision may, at one point, work out fantastically. The chance of multiple bad decisions working out is astronomically low, however.
Frailich continues, “All around us, people confuse the results of a decision to be completely linked to the decision-making process that went in. This is the concept of ‘resulting,’ or drawing a conclusion on the soundness of a decision based on the outcome, rather than whether there was a sound decision-making process that gave you the best chance of a favorable outcome.”
Traditional investments
When it comes to investing, the key to success is the cumulative impact of sound decisions and their mostly favorable outcomes. Just as people made lots of money back in 2000 before the tech bubble burst, so too do I fear that AI and chip stock-only portfolios will meet the same fate. Keep in mind that I am not opposed to investing in these sectors. I’m a big believer in AI; it’s just that like any other investment fad that we’ve seen before, although they tend to end poorly.
A few months ago, I met with a prospective client who was a tad obnoxious. When the call starts and the first question is, “What can you do for me?” without even giving me their name, I know that there’s trouble ahead. He said that he’s seen my ads and wants to know why he should open an account with me.
I told him what I do and he says, “You know, I’ve been recently investing in chip stocks like Intel, etc., and have made a ton of money. In fact, all of my money is invested in those stocks. What do you think of that?”
My answer was that he should be careful. Nothing stays in a straight line forever, and there could be trouble ahead. I mentioned more diversification, my usual spiel, really. He laughed, and then said it’s not relevant and that he can do better.
Since our discussion, there has been an over 20% drop in those stocks. Now, that doesn’t mean they won’t go back up. It means that a bad approach worked out. More pressingly, it doesn’t mean that you’re the exception to decades and decades of investing data.
When it comes to investing, you may hit it big on an investment or two. Over time, however, your luck will almost certainly run out. The time-tested approach to growing wealth is to use quality investments and have a long-term horizon. This is the cumulative effect of solid decision-making.
Don’t focus on one bad decision that worked out well, and think it’s the secret recipe for success. It’s not. In fact, it’s a terrible way to make any decision, and an even worse way to run your finances.
The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.
Aaron Katsman is author of the book Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing (McGraw-Hill), and is a licensed financial professional both in the United States and Israel, and helps people who open investment accounts in the United States. Securities are offered through Portfolio Resources Group, Inc. (www.prginc.net). Member FINRA, SIPC, MSRB, FSI.
For more information, call (02) 624-0995 visit www.aaronkatsman.com or email aaron@lighthousecapital.co.il