Thursday, December 19, 2013

Ask. Then Ask Again.

I told the boys this morning about a research study I recently read about. The study found most people underestimate others willingness to help them. As a result, most people don't ask for help as much as they should. The study create a number of scenarios in which participants had to ask for help, e.g., asking a stranger to borrow their cell phone. Participants had to guess what percentage of the strangers would help them. They significantly underestimated the number. The reason is very interesting: when we ask for something, we consider the size of the ask in our guess about whether we will get the help we are asking for or not. However, when someone asks something from us, what first comes to our mind, in deciding whether to help or not, is the impact of not helping. How bad will it look if I don't help? How will it impact the person who is asking? With this factor driving the decision we are more likely to help...

Furthermore, the study also found that people incorrectly assume that those who reject our requests are likely to reject future requests. Turns out those who reject a request from us are more likely to accept a future request. Think about it. If the main driver of the decision is how the rejection will be perceived, then rejecting us twice in a row would have a very negative perception, thus people try to avoid it. On the flip side, those who have already done favors for us are more likely to turn us down in the future, as that wouldn't look so bad.

Ask for help. And ask from anyone who can help you.

Tuesday, December 17, 2013

Don't postpone your tough decisions

Paco spoke to us about people who postpone their decision to "come out of the closet". Most of them discover that things don't turn out as bad as they feared and that the delay was the worst part of all. I observed that this can be generalized to all tough decisions, such as leaving a job or breaking up with someone. While the time immediately following the event is usually very tough, things quickly get better (much faster and much better than people anticipate). And most people look back at these events and regret not making these tough decisions sooner. Just do it!

Wednesday, December 4, 2013

Rebalancing your portfolio

A few months ago I helped the boys invest the savings they had (from birthday presents, allowances, etc). I used it as an opportunity to teach them a bit about investing, and also, with the hope that their savings would grow. At the time I suggested that they put 10-20% of their savings into Bitcoins. I explained to them then that Bitcoins had a lot of upside, but were very volatile and could also go way down, but that I felt they were a good long term investment (at least for a small percentage of their savings). They all liked the idea and put about 20% of their savings into Bitcoin, with the rest in a couple of mutual funds. The price of Bitcoins then was $150. The price of Bitcoins today is $1150! I am afraid this experience might have turned them into gamblers!!! Seriously, I told them this morning that they should considering re-balancing their portfolios, because their Bitcoins now represent 70% of their savings.

I put it this way to them: if they were investing their savings today, would they put 70% of them in Bitcoins? Probably not. The fact that their Bitcoin gains come form the appreciation of Bitcoins is irrelevant. Similarly to when they first invested their savings they should allocate a small fraction of them to such a risky asset. If they sell some and keep some they can feel good about what they sold if the price goes down and good about what they kept if the price goes up. A win-win :-).

We also spoke a bit about time horizons and needs. Nico joked that Ale could now buy himself a car. I made the point that if getting a car was an important goal and the value of his investment was enough he should consider selling his investments and setting the money aside for the car. Sure, he might miss some additional upside, but that is OK if he secures his objective. Ale is not interested in a car at this point though, but he might put some money aside for a nice bike :-).

Some people, of course, don't like to "play it safe" but prefer to make big bets.  We often read about these people in the news - at least the ones whose bets pay off. I actually like being bold and taking big risks. That is often how fortunes are made. But you must have conviction on your bets. If one of the boys understood Bitcoins well and had conviction their value would go up, I would be supportive of their investing the bulk of their savings in them. But not just because they "might" go up. That would be gambling.