The basic tenets of supply and demand apply to more than just prices, but rather extends to how we value things. When life is good, supply is plentiful, and resources become cheap – we might become wasteful because we have the luxury of knowing there’s more where that came from.
Conversely, the same can be true when supplies are scarce. Think back to the beginning of the pandemic, when toilet paper was a coveted item and people paid a premium just to get a few rolls.
It’s only natural to enjoy the security of having all the resources we could possibly ever need – but does it make us more appreciative or more careless?
While our first tendency is to panic at the hint of scarcity or climbing prices, what if we focused on the positive changes we can make? Becoming more thoughtful in our consumption allows us to find more joy when we do indulge. We might even derive greater pleasure without spending one cent.
Investing is no different – when the market climbs and climbs – there is an expectation, a greediness that this will continue. The second the dance music stops playing, we lament that “the good old days” are gone, as if they were normal. In fact, we only recognize times as “abnormal” when they work against us. I would argue a runaway market should make investors wary, as the chance for disappointment is higher. And, as seasoned investors know, disappointment can torpedo market returns.
Ironically, investors rarely worry about the irrational exuberance of high markets. They show up, eager to buy at any price, regardless of whether or not the investment is a viable long-term opportunity. When returns are plentiful, there is a temptation to throw money around, without thoughtful contemplation. And when the market is on sale – when valuations are more reasonable – there’s a stampede in the wrong direction – away from opportunity.
Soaring gas prices, inflation, and a volatile market can make for great discomfort. But these are conditions we are powerless to change. Worrying or getting angry is useless, leading to a spiral of fixation, frustration, and despair. White knuckling it interferes with focusing on the future, and makes it difficult to attain goals.
While it is humbling to see how much we can’t control, it can also be freeing. If we only focus on the few things we can control, suddenly it is easier to assess and weigh the options.
The gift of challenging times is that it forces us out of our primitive/survival mode in favor of using our uniquely human abilities – inventiveness, creativity, and resourcefulness. It is then we actually exercise the greatest control of all.
What does that look like in real-time?
Thoughtful consumption – Cooking from your freezer, pantry, or garden – with what you already have on hand can save your trips and cash at the grocery store. The same goes for fuel usage – can you walk, take a bike, carpool, batch your errands? Maintaining what we already have instead of buying a replacement item is satisfying and beneficial to your wallet and the planet.
Values lead – It’s easier to reduce spending and increase savings/investing if you choose to focus on what matters to you. When you review your spending, how much goes to items, subscriptions, or meaningless spending that you simply fell into a pattern of indulging? Cutting the fat, when the fat isn’t something you want, need, or would miss is easy because you don’t care about it. Likewise, delaying gratification to save/invest for something that is more important to you becomes easier – because a meaningful reward still lurks on the horizon.
Look forward and accept change – Conditions change all the time. That means you’re alive. How well you adapt determines if you are living or existing. Embracing change by looking for the opportunity it presents, turns a negative into a positive. In investing, that might mean rebalancing your portfolio to buy holdings that have been so disappointing, there may be little room for more disappointment. Lower prices are good if you’re buying, and bad if you’re selling. Make sure you remember that when you want to indulge the primitive flight instinct prematurely.
Joy and peace are a choice – Much of what gives us deep satisfaction in life doesn’t involve money at all. It is connection – to people, to interests/hobbies, to experiences. How many things bring you joy each and every day? The company of my family around the dinner table, a strong cup of coffee, a walk on the beach, a good book, a hot shower, my favorite tunes, writing a story, and talking with a friend – are among my favorite things of all – oh, and they happen to be free.
Introspection is time well spent – Take inventory of the abovementioned points. If you’ve been sidetracked or hijacked – now is as good a time as any to contemplate what matters to you most, what goals you hope to achieve, and take steps to fortify yourself to get there. Reduce unnecessary, unrewarding spending. Invest in the things that matter most to you and your family – education, experiences, whatever your hopes are for the future. You’ll be stronger, leaner, and more appreciative when you reach your destination.
There doesn’t need to be an imbalance in supply/demand, or a crisis at hand to get better with your finances. However, there’s no harm in using adverse conditions to your advantage.
I’d love to hear how you are making the most of these challenging times. Email me at tmm@ritholtzwealth.com.
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