Thursday, June 30

There's a lot of Waste Out There


All man’s miseries stem from his inability to sit in a room alone and do nothing.

I was watching a video the other day of Buffett Disciple Mohnish Pabrai and something he said made a lot of sense. He suggested that the reason most people under-perform the stock market is because they can't sit still. Maybe you've heard that 80% of mutual funds perform worse than a simple index fund. In other words, if you just "bought the market" you would make more money than you would if you paid a professional to invest your money. One of the reasons for this is because of frequent trading in stocks.

When I was 18 I opened up my very first brokerage account with Charles Schwab. I deposited all the money I had made at the time from working, which wasn't much, and enthusiastically started investing. About a year later I realized I wasn't making a heck of a lot, but that Schwab was making a killing off me with the commissions I was paying. I don't remember the exact amount that I had invested, but I do remember that in that first year I paid over $2,000 in trading commissions. If all I had done was invested my money in an S&P 500 index fund I would have been about $2,000 wealthier at the end of that year.

There are so many other occasions in life where we spend money and have very little to show for it. We will drive two miles out of the way to save a penny on gas, or run our home air conditioning all day long while we are away. Then we have to work more to pay for it. It's just so wasteful.

I realize now that most of the financial mistakes I've made - really, most of all the mistakes I've made in life - have stemmed from my refusal to do nothing at all. I bought a BMW because I was bored with the Corolla and thought I "deserved" better. I moved into the house I am in now because I wanted a change, not because I wanted to expand my real estate empire (that's the only rental I have that isn't cash flow positive). I've gotten speeding tickets because I wasn't content driving the designated limit. I ran a red light once (and got caught) because I was tired of sitting at the light.

It's absolutely true. We humans can't bear the thought of inactivity. It's all about change... for the sake of change.

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