Soul-Satisfying Investing

David F. Swensen is best known for his lengthy tenure as Yale University’s Chief Investment since 1985, and for the Yale Model for durable institutional fund management. It’s less well-known that he spent six years on Wall Street before accepting his academic post, forgoing the potential to earn hundreds of millions of dollars as a high-flying fund manager. True, being Yale’s CIO pays well enough, but nowhere near the levels portrayed by Leonardo DiCaprio’s character Jordan Belfort in “The Wolf of Wall Street.” Why did Dr. Swensen opt for a more modest lifestyle? In an NPR interview, he explains: “I had a great time on Wall Street, but it didn’t satisfy my soul.”

This is a good lesson for all investors, regardless of the dollar amounts involved. “The Wolf of Wall Street” is an extreme example of scruples run amok. Few of us will ever have the “opportunity” to discover how we might behave under similar circumstances – and I say, thank goodness for that. On an everyday scale, it’s worth noting that financial success is best measured by how effectively it contributes to your total well-being – your health, your happiness, your family’s together time – not by whether you can afford to toss $100 bills over the railing of your personal yacht.

This is the difference between investing for your life, versus investing becoming your life.

I recently read another great example in this article by Brett Arends, “Dinner with Goldman Sachs cost him $34 million.” It relates the sour-grapes tale of “self-made Asian tycoon Peter Oei,” who is suing Goldman Sachs, alleging that “Goldman’s bankers lied to him, suckered him, and then scammed him out of millions.”

We’ll let the courts and a cadre of well-compensated lawyers sort out whether the case has merit. The point here is that Oei’s speculative investment activities have left him angry and hurt, and spending countless hours of his precious time trying to alleviate the pain. Life’s too short for that.

Even when speculative investment outcomes turn out to be rewarding, they still may not be in your best interest. This is poignantly illustrated in Jason Zweig’s Wall Street Journal article, “When a Giant Gain Causes Pain.”

Zweig relates the experience of a professor of finance who admitted he should have known better but succumbed to purchasing some promising Tesla Motors stock in February 2013. He then purchased additional call options when the stock started to go up. The options meant that he stood to profit even more dramatically if the stock continued to rise. But it also meant he could lose many more dollars than he’d invested, winding up in a money-owing hole if the stock fell.

That’s not investing, it’s speculating. He postponed telling his wife, also a professor of economics, because they had specifically agreed to not use options with their personal wealth. The act troubled him though. So in May 2013, he confessed to her about it, sold the options at a profit and kept the stock. Having purchased the stock at $38/share, he vowed to sell when it reached $200.

Then, sadly, he passed away of an unexpected heart attack. Grieving the sudden loss of a cherished spouse seems insurmountable enough without simultaneously facing stressful financial decisions. In determining when and whether to sell the rest of the stock as its price gyrated wildly, his widow expressed, “Nothing prepared me for the sudden responsibility of managing this. By training and intellectual preparation I should have been qualified, but I was utterly unprepared for how difficult it would be emotionally.”

These are only a couple of countless illustrations that convince me more every day that all investors – even those who feel they are intellectually prepared to manage their money wisely – must remember that money is a highly emotional outlet as well. Investing according to a rational plan that suits your goals may not be as thrilling as watching your high-flying stock options pay off, but it helps ensure that your emotions about your wealth are best positioned to feed rather than burden your soul. Give us a call if we can help you with that.