On Knowing Your Values and Solving Problems Backwards
Why do you invest?
Really think about it. My gut response used to be, “to replace my future income,” as I’ve discussed here. However, this response was incomplete. I say incomplete because it seemed too cold and mathematical. It was not based on my personal values. Investing without considering your values is like having the fastest boat in the middle of the Pacific Ocean with no set destination — no matter how fast you go, you will always feel lost. Chasing riches without knowing why you truly want them is a surefire path to lifelong misery.
You might be skeptical, but think of the countless investors who have lost their fortunes, their families, and their freedom pursuing money without purpose. Don’t get me wrong, some of these individuals may have valued the idea of having the most money, but I would guess that they are actually trying to fill a deeper psychological need (i.e. being respected intellectually) instead.
Though you may not be trying to amass wealth at the scale of Bernie Madoff, this idea still applies to you and the choices you make. Because without asking yourself why you want to invest, you could end up living your life based on someone else’s values. You could end up chasing their dream instead of chasing your own. You could end up slaving away for 40 years, sacrificing your health, sacrificing your personal time, sacrificing your passions…for what?
Don’t get me wrong, I am not trying to suggest that people don’t invest. Rather, I am suggesting that they invest with a proper end state in mind. Otherwise they may take too much risk, or cut their spending too drastically, or work too many hours just to have more money (that they never really needed) in the long run. Too much money might seem like a good problem to have, but getting to that point is almost never costless. People tend to overlook this fact at their own expense.
This is why I recommend finding what you value first then deciding how to invest. This process is known as backward induction (i.e. solving a problem in reverse) and it was one of the most important pieces of advice I got regarding finding the right career. My college advisor told me to, “find your dream job and then find what you need to do to get the job right before it. Then find what you need to do in order to get the job before that one and keep solving backwards.” The advice was perfect, except I had little idea what my dream job was as a 22 year old.
You can use the process of backward induction to solve for your ideal investment strategy in the same way. Find what you value in life, then optimize your future savings rate and expected investment returns to fulfill these values. Trust me, no part of this process is easy. I spent 27 years before I started to have a deeper understanding of my personal values, and trying to plan your future savings rate and expected investment returns is very difficult. However, in the process of doing this, you may realize more about yourself and what you truly care about.
How To Find Your Values
I am not exactly sure how you can find what you value, but there should be clues in your past to guide you. For example, since the age of six I have enjoyed teaching people things. However, I only became aware of this after I had been blogging for some time and realized that the blog fulfills this need. The clues were there all along, but I never noticed them until later.
This is why understanding yourself is so important in both life and investing. If you don’t, you could end up living a life that is not really yours. It reminds me of an excerpt from one of the greatest speeches I have ever heard from the late Steve Jobs (emphasis mine):
Your time is limited, so don’t waste it living someone else’s life. Don’t be trapped by dogma — which is living with the results of other people’s thinking. Don’t let the noise of others’ opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition.They somehow already know what you truly want to become.
So my friends — stay hungry, stay foolish, never forget to ask yourself why, and, as always, thank you for reading!
This is post 65. Any code I have related to this post can be found here with the same numbering: https://github.com/nmaggiulli/of-dollars-and-data