Unmasking the Secret Villain Destroying Your Investment Profits

My youngest son has really gotten into video games. I don’t mind at all. It gives me a chance to relive my youth and enjoy some time playing together with him.

He particularly enjoys strategy games – the kind where you must build kingdoms, harvest resources and expand your empire. Those aren’t the kind of games you can finish in an hour or two. You must make progress over days, weeks, and months.

The best move might not be the one that gives an immediate reward. Patience is required to optimally martial your resources and build for long-term success. The kind of patience that really taxes a 6 year-old’s mind.

One day we were playing when it suddenly hit me – there is a secret villain that’s destroying the players’ success. The same villain that’s probably destroying your investment profits.

Playing this game made me realize that it’s not just 6 year-olds that have problems with patience. Nor with deferred gratification and making sound long-term moves. Investors too must overcome this villain or risk poor investment results.

One time we were playing the game, and a debate ensued among our group of players about the best way forward. I will spare you the details but suffice it to say that the best action was clear to everyone. However, many players still wanted to pursue the alternative.

Why? The response was universal – the right way to play was “too boring.”

That’s when it struck me. Boredom is the secret villain that is destroying the success of many investors.

How?

Doing nothing is boring. However, that’s frequently the right investment move. The alternative – lowering your investment standards with respect to either price or quality just to do something is dangerous and could easily lead to permanent capital loss.

Staying invested in low-cost index funds regardless of the news of the day is boring. For many investors, that is the best option. Far better than what the myriad of salesmen, TV talking heads and social media “experts” would have you do with your hard-earned savings. They are offering you excitement, but it’s seldom the right choice for the average investor.

Studying a company in-depth can be boring. It’s far more fun to be an armchair philosopher – shoot from the hip after a quick and superficial understanding of the business and the people running it. Then you can get your next dopamine hit by forming a quick opinion about another company and acting on that. Maybe exciting, but unlikely to be as profitable as serious research.

Waiting for an out-of-favor investment to work out is boring. It can test your patience and mental stamina. It’s far more fun to be invested in the blue-chip glamor companies of the day. Everybody else is, they are going up, so why the heck not?? Never mind the high price of the stock, the company is so good that it can’t be a bad investment, right?

Real self-improvement as an investor is hard and boring. It challenges your sense of competence by forcing you to tear-down previously held beliefs in order to improve. It’s far more fun to surround yourself with an echo-chamber of voices telling you that you are doing everything right.

Come to think of it, there is nothing wrong with a little excitement. However, it’s far better to get it from something like a video game than from your investments. In a video game, let yourself go – make that fun but suboptimal move. It’s only a game. Your hard-earned savings, however, should not be a game nor a source of excitement. Your investments might well benefit from being quite boring – and very profitable for you in the long run.

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About the author

Gary Mishuris, CFA is the Managing Partner and Chief Investment Officer of Silver Ring Value Partners, an investment firm that seeks to apply its intrinsic value approach to safely compound capital over the long-term. He also teaches the Value Investing Seminar at the F.W. Olin Graduate School of Business.

Note: An earlier version of this article was published on the Behavioral Value Investor Substack