Market Volatility and the Invisible Gorilla

Familiar with the invisible gorilla social science research? Learn about it here. It demonstrates that although we think we see ourselves and the world as they really are, we’re missing a whole lot.

The personal finance invisible gorilla is the precise difference between your average monthly income minus your average monthly expenses. Understandably, right now, with the stock market fluctuating wildly and ultimately losing value, many peeps are obsessing on the declining value of their stocks and bonds.

Meaning they’re not paying nearly enough attention to the two things that will determine their financial well-being medium and long-term. (1) The relative difference between their average monthly income and expenses and (2) their time horizon.

Forget investing altogether until your average monthly income exceeds your average monthly expenses ten to twelve times a year every year.

A friend bought some AAPL shares during last week’s roller coaster ride and I’m probably to blame because I’m a fanboy, I own it too, and occasionally talk it up (everyone talks about their gains, not their losses, my term for this is”gain bias”). His first day of ownership just happened to be a good one so he emailed me, “Nice amount of returns in 24hrs.” To which I replied, “Dear Usain, It could hit 300 before 400. Financial independence is a marathon.”

Should probably trademark that line before I start hearing it on MSNBC. I’m learning not to sweat large paper losses during market corrections because I know that overtime, my modest income/expense differential, which translates into monthly cost-averaged investing, will lead to greater wealth in five, ten, twenty years.

Taking the long view is not a panacea because there are two other vexing challenges: 1) increasing one’s average monthly income and 2) reducing one’s average monthly expenses. People focus too much on 1 (offense) and not enough on 2 (defense). If only we could all find jobs that paid mad money or find more hours in the day to work or get others in our orbit to kick in more on the income side. Defense isn’t that complicated. Resolve to eat out less. Camp out. Buy movie tickets at Costco^. Commute by bike. Buy clothes at Costco^. And most importantly, quit bringing sh*t home you don’t need.

And speaking of gorillas, not a sci fi guy, but still loved really liked (moms says you can’t love something that can’t love you back) The Rise of the Planet of the Apes.

^ Full disclosure, should of held them, but I sold my Costco shares awhile back. For a loss.

My new old lunch box

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One thought on “Market Volatility and the Invisible Gorilla

  1. These small personal changes do help but when people who have properly planned get laid off – both spouses – and run through their savings before they can land another job (if they are lucky enough) then eating in is no longer part of a plan of action. Eating itself becomes difficult. There’s still the mortgage and health issues staring you in the face and you may have had to sell the computer you trade stock with to pay on either of these.

    Some people are hit harder than others and everything they have done right up to this point has had no saving grace for them.

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