Don’t compete (Financial Athlete #11)

An athlete trains for strength, endurance, balance, and flexibility. Training for flexibility should be approached gently. The tendency for many athletes is to push themselves too hard with flexibility. Rather than enhance athletic prowess as intended, injuries often result.

Good yoga teachers encourage students to “listen to your body” and “don’t compete against others” to avoid injuries. Better a half pose in good form then a forced full pose, even if the person next to you belongs on the cover of Yoga Magazine. A good yoga teacher will tell you to focus on the breath and not on the extent of the stretch.

Competing also can cause “financial injuries” for investors who place to much pressure on themselves for high returns. While I believe it’s good to take on some risk and invest beyond your comfort zone for sound investments, to do so excessively is over-stretching. An example of this kind of over-stretching is borrowing from credit cards and home equity lines of credit to finance purchases of stocks.

Now you may think yourself smarter than that and limit your debt exposure to well within your disposable income to pay off the monthly interest charges may sound reasonable. But later the prices of your stocks tank. Your supposed discipline to limit debt exposure suddenly vanishes. You act impulsively and increase your positions financed by more debt. While you may get lucky to see stock prices recover, a potentially devastating pattern develops. Eventually, large positions in a few stocks (or one!), accumulated from averaging down, never bounce back or when they do it’s too late…financing the debt is unsustainable.

Don’t compete. Be steady by placing more importance on managing risk over chasing returns. To focus on being steady runs parallel to yoga’s mystical “focus on the breath”. You’d be in great company to do so. The master of a steady path to investing is Warren Buffett.

“I don’t look to jump over 7-foot bars. I look around for 1-foot bars that I can step over.”
–Warren Buffett

“Real learning comes about when the competitive spirit has ceased.”
— J. Krishnamurti


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