“Bulls make money, bears make money, pigs get slaughtered” is an old Wall Street saying that has been on my mind lately. Why? Because more than once in the recent past I have found myself thinking in a way that is distinctly porcine and I’ve had to remind myself sternly of the fate that befalls greedy little pigs.
When the Slow and the Steady Meets the Fast and the Furious
We’re attempting to achieve financial independence and early retirement the good old-fashioned way. We’re invested in boring old index funds (yes, you guessed right, VTSAX figures large in our investment portfolio). We’re saving as hard as we can. Our journey to financial independence is measured in years. With our high incomes we are fortunate that our journey, unlike those of many others, is not going to be measured in decades, but it still is clearly the path of the tortoise, and not that of the hare.
So here we are, plodding along ever so sensibly, wearing our ever so sensible shoes, and suddenly we are beset by the siren song of the quick buck. If you frequent financial forums and have not been living under a rock, you would know that cryptocurrencies recently went berserk. On April 1st 2017, the total market cap for all cryptocurrencies was about $25 billion. Approximately two months later, it was $100 billion. That, my friends, is pretty damn insane.
Let’s take a look at Ethereum over the last year:
The gradient of that graph makes my inner piggy salivate.
In March 2017 Ethereum was trading at $15.85. On the 12th of June, 2017, it was at $404.02. In the same time period Bitcoin went from $1181.69 to $2673.35.
Suddenly the online forums were filled with folks who were instantly financially independent. You couldn’t turn without stepping on a crypto-millionaire (and in my envy I will confess that I wanted to step on them hard, while wearing pointy high-heeled shoes). And there was no escaping it in real life either. I have a few colleagues that made some money on cryptocurrencies and were more than eager to talk about their great good fortune (not I’m-buying-a-private-island-fuck-off money, but in the range of a couple of hundred thousand). It didn’t help that Mr. BITA had briefly considered investing in a handful of bitcoin way back in 2011.
It felt like I was clip clopping along merrily in my horse drawn buggy, and suddenly folks in Ferraris were roaring past me to the finish line, leaving me covered in much dust and more jealousy.
Of Greed and Temptation
Despite knowing better, I found myself drawn to this world of fast money. I caught myself considering speculating in crypto coins. Should I get myself some Monero? Litecoin? Ripple? I found myself in the throes of some serious #FOMO. I would catch myself fantasizing about what it would be like to be financially independent in 6 months, instead of when I’m 42. My greed was calling out to me, and I was turning into a pig.
Here is what I realized as I wrestled with temptation:
Knowing better does not mean that you will definitely do better.
Knowing better does not automatically mean feeling better about what you know to be the right thing to do.
Doing better (and feeling better about doing better) take effort. A fair bit of effort sometimes, because trying to outsmart yourself is a bit like playing chess against yourself.
How To Not Turn Into Bacon
If you ever feel yourself on the verge of turning into a pig, here are some tricks you can try so that you don’t end up becoming bacon:
- Review the fundamentals. Remind yourself of your plan, of your investment policy, of all the hard work you have done to get where you are today. Imagine how pissed past-you would be if now-you blew all of that hard work in one greedy move.
- Research the downsides. Dig deep and find the laundry list of things that can go wrong with the shiny new toy you are considering. Imagine Losing. Every time you find yourself locked in a daydream where you are in a yacht sipping champagne, replace that with the nightmare of losing your shirt, the disappointment in the eyes of your spouse and watching your FIRE date fade away into the distance.
- Raise the bar. Let’s say you planned to save $X this year. Give yourself a stretch goal. Tell yourself that if you achieve 1.2*X, then you will be allowed to blow one month’s savings on your speculative investment of choice. Or go buy a bunch of lottery tickets. This results in a win-win. If you manage to push yourself to save more than you thought possible (by cutting costs elsewhere), it won’t hurt too much to then speculate a bit.
- Remember Monopoly. Allow yourself to scratch that itch right now, but do it with ‘play’ money. Want a crypto coin? Set a very small budget and then go to town with it.
- Pay to Play. Allow yourself to speculate, but not at the cost of your existing investments. If you want to speculate, you have to find the money somewhere in your budget.
I’m Not a Hog
I’m pleased to report that I beat myself at chess and that VTSAX is still king of our portfolio. I have resisted turning into a pig, and have thus saved my bacon. I may use the play money strategy outlined above in the future, but for now I am staying the course.
Have you ever faced the temptation of making a quick buck? What did you do? Have you made a killing on cryptocurrencies?