We’re all making investments in our finances, careers, personal circumstances, families, and communities… you name it. These investments absorb time, money, emotions, effort, energy and a load of other resources. Do you ever look back at everything you’ve got going on ask yourself, “Is it worth it?” or “Are my ideas working?”

Since my birthday last month, I’ve been evaluating how good I am as an overall investor in the portfolio called Life, what the right metrics are per area, what I’m doing right or wrong. It’s an ongoing self-assessment so while I don’t have any declarative positions yet, I do have have 4 main themes which have been top of mind lately. When I get them right, they boost my confidence but when I get them wrong, they trigger concern.

It’s tempting to get swept up in planning and pursuing the big wins but the investing game is really won through good risk management. 3 out of 4 themes for me are about playing defense, because that needs more thoughtful actions. However, practising discernment should not be confused with pessimism. Worthwhile risks are still out there, it’s just that 2022 is a complicated time socially, politically and economically. I am hoping to make good decisions for now, and time will tell if they prove to be the right decisions.

In describing my 4 themes, I use financial jargon a lot but I apply the concepts to any and all things in my life.

1. Knowing when to walk away.

There is profound wisdom of knowing when to walk away from an investment that is not meeting expectations and has unlikely odds of doing so. Investment has risk and risk is like fire. It can fuel your needs and keep you warm but it can also burn you. There is no longevity once you burn out, and recovery is painful. Knowing how and when to walk away keeps me sane, solvent and dare I say, satisfied. My timing of when to exit for minimal loss might be a little off but I am okay with that as long as I leave with something!   

2. Understanding asymmetric risk.

Over the years I’ve been learning to guard against opportunities that look like this:

• Low rewards with low probability but no risk of loss

• Low rewards with low probability but on the other side, a high probability of a large loss

• Low rewards with high probability

• High reward with low probability

• In all scenarios, not fully understanding the dynamics or having superior information about the risks and therefore not assessing correct probabilities

Why would anyone fall for these, you may ask? I think each of us struggles with accurately assessing personalised risk/reward precisely because it’s relative. Some don’t know they are setting themselves up for low gains versus their true potential. Others want a win by any means as a confidence booster. It’s also not practical to function exclusively on a “high rewards/high probabilities only” basis. However, there is power in consciously calibrating the trade-off being made; most of all concerning time and energy spent on low rewards and/or low probabilities.

3. Counting the (sunk) costs.

No matter what the investment area is, there is always the issue of effort and resources expended that you cannot recover. I used to think keeping sunk costs top of mind would deter me from taking certain chances. Instead I found that awareness helps me screen my options better: I can spot the difference in what makes new options a good fit, I have an idea of how to mitigate over-investing or how to get more return for the same investment.  

4. Mutual value.

It may sound idealistic to some but I believe in winning through mutual value rather than at other people’s expense. I want to have fun with minimal regrets. After all: “After the game, the king and the pawn go in the same box.” If haters still come after me, let it be a self-led prerogative instead of it resulting from provocation. To live this as consistently, creatively and effectively as possible, I recognise I have to invest in becoming an evolved person capable of delivering that objective. 

When working on the types of goals that require solo effort, it makes sense to ask, “Am I creating value?”. That value can largely accrue to the individual with optional spillover benefits to others around you. However, once you are playing team sports for any personal or professional goal, I increasingly find that investments get their best pay-off when viewed from the lens of “Am I creating mutual value?”.  

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How are you approaching or feeling about the investments you’re making (in life at large)? Leave a comment below.