Shiny Objects

Bill Parrott |

After years of investing prudently, following his plan, and spending wisely, a young ruler was ready to retire and enjoy the fruits of his labor. He met with his trusted advisors to see if it was feasible. They affirmed his decision, and congratulated the young ruler on his accomplishment, and wished him well.

The young ruler was excited to retire and pursue a life of leisure and travel. His investments would afford him a comfortable lifestyle if he were smart. So, off he went.

The young ruler noticed the town residents looking at their phones often. They were checking their high-flying investments. Was it time for him to explore these risky assets? Could he invest a portion of his nest egg into a couple of new ideas? It couldn't hurt, he thought, despite not knowing anything about their business models. He noticed the companies weren't profitable, but it didn't matter because he was sure they'd make money eventually. He took the plunge and bought some shares.

His new retirement strategy was working, and the investments appreciated significantly, better than his traditional investments. Now he was questioning his overall investment philosophy, sure his long-term investments did well, but maybe it was time for a change. Should he transfer more assets into his highflyers?

He was not alone in his thinking. The townspeople shoveled more money into these speculative assets. Enjoying their newfound riches, they bought jewelry, watches, and exotic sports cars, flaunting their wealth to others. The young ruler followed suit and spent lavishly on things he did not need. The entire town was in a buying frenzy; each assured their investments would rise forever, so they leveraged their accounts to buy gadgets with future profits that were sure to come.

One day the young ruler noticed his investments were down, a surprise after months of rising profits; convinced the dip was temporary, he bought more. And more. He continued buying as they dropped further. He was not concerned that his account value was dwindling because these high-flying stocks would certainly rebound soon, but they did not. The young ruler traded his account to oblivion, and he lost everything. He no longer had enough assets to enjoy a comfortable retirement and was forced to sell his mansion and return to work.

Moral of the story: Don't abandon your plan if it's working.

Joseph Heller, an important and funny writer now dead, and I were at a party given by a billionaire on Shelter Island. I said, "Joe, how does it make you feel to know that our host only yesterday may have made more money than your novel 'Catch-22' has earned in its entire history?" And Joe said, "I've got something he can never have." And I said, "What on earth could that be, Joe?" And Joe said, "The knowledge that I've got enough." ~ Kurt Vonnegut

December 24, 2020

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM's custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren't suitable for every investor.