A financier’s discourse on the parallels between online dating and investing. Instant classic.
Eric J. Fry, writing for The Daily Reckoning, an investment website:
“You should try Match.com,” a friend suggested to your New York editor recently. “That Website rocks!”
“Yeah, I know about Match.com,” we replied. “That’s the somewhat hip dating site where my ex-wife placed an ad to find a nice Jewish doctor…but I’m not looking for a Jewish doctor, or even a Catholic nurse…in fact, I’m not in any big hurry to look for anyone.”
“But you should give it a shot,” the friend persisted. “It works…I know some guys who’ve met really nice women there. You know Eric, no one meets women in bars anymore…you meet ’em online.”
“I don’t doubt you one iota,” your editor replied. “But I’m not in any hurry to interact with a bevy of materialistic New York women…that sounds exhausting. And besides, I’m having a great time just hanging out with my kids and writing and playing beach volleyball, and generally enjoying the lowest stress levels of my adult life…why mess that up by dating a beautiful woman?”
“Okay, fine,” the friend said, “but you should give it a shot anyway.”
“Thanks…I’ll think about it.”
A few days later – your editor’s curiosity piqued – he placed a personal ad on Match.com. Three weeks into the mission, he has observed that the process of online “dating” is nearly identical to the process of investing – a blend of quantitative and qualitative processes, guided by diligent risk-management, as well as the intuition born of experience. Please understand that your editor neither approves nor disapproves of the online dating process. He is merely participating in it and recording his observations.
Just like “offline” dating, the Web-based variety is more cruel than kind. Indeed, the process is Darwinian in the extreme – only the fittest thrive in this venue. Thus, for example, if you happen to be a 5-foot 10-inch Victoria’s Secret model, and provide ample photographic evidence within your ad, your “inbound” email box will runneth over with communiqués from cyber-suitors.
These “alpha-females” typically produce ads that feature less kindness than candor. One particularly stunning young woman, for example, greets prospective dates with the following challenge:
“Don’t try to impress me with nonsense…..no matter how intelligent, good-looking or rich you think you are….I have dated someone more intelligent, better looking, who has more money than you….I am looking for something real. I am very picky and will make you work hard for my affection but, if you stick with me…I am a very loyal and loving girlfriend. Good Luck!”
Her guidance may seem a bit harsh, but at least it’s truthful. Most of the ads, by contrast, are far more upbeat and inviting, like a public company’s annual report. Which means that they are also potentially deceptive. No deception is intended, of course. These ads are the work of ordinary men and women expressing ordinary hopes and dreams…while trying to present themselves in the best possible light. Again, much like a public company.
The prudent dater understands, therefore, that reading a personal ad merely begins the due diligence process. He will, like the intelligent investor, conduct a thorough, first-hand analysis before committing to a sizeable investment. This, then, is the first of many similarities between online dating and investing.
But there are many more similarities. Allow us to present a brief list of the valuable investment lessons your editor re-learned from the online dating process:
1) Establish reasonable objectives.
2) Maintain a diversified portfolio.
3) Beware of limited disclosure.
4) Remember that positions with a history of volatility tend to remain volatile.
5) Add foreign exposure to boost returns.
6) Avoid repeating the identical errors.
7) Cut your losses, let your profits run.
8) Do not forget that popularity and value are inversely correlated.
9) Do not overtrade.
And lastly…
10) Keep a sharp eye out for “thin tails.”
Let’s take a closer look at a few of these lessons…
Lesson #6: Avoid repeating the identical errors. Using Match.com’s “Search” function, your editor queried its database to find “compatible” females. Imagine his surprise when the resulting list of candidates INCLUDED his ex-wife! While it’s true that your editor and his ex remain on very friendly terms, their statistical compatibility, as determined by Match.com, is, at best, an “outlying” data point…all investors make mistakes, but they should be vigilant to avoid making the same mistake twice.
Lesson #7: Cut your losses, let your profits run. Bad investments usually subject investors to gut-wrenching volatility, while often eating away at their capital. The effects of which can be psychologically taxing. At best, a bad investment imposes an opportunity cost – continually distracting from the process of identifying more worthwhile investments.
Lesson #8: Do not forget that popularity and value are inversely correlated. A “hot stock” is rarely a worthwhile long-term investment. But most investors just can’t help themselves; they’d rather chase after a fresh, young IPO than to content themselves with a well seasoned large cap stock.
Lesson #9: Do not overtrade. It’s better to identify a few key prospects and to manage those positions wisely, than to engage in short-term activity with tens of stocks at one time. In other words, don’t try to day-trade investments that you should be “buying and holding.”
Lesson #10: Keep a sharp eye out for “thin tails.” This is simply another way of saying, “avoid the fat part of the curve.” Thin tails are those select opportunities that lie on either side of the probability bell curve. Within the thin tails, one may find prospects that are relatively rare, often complex, sometimes exotic and frequently worth pursuing. But beware, thin tails also contain the market’s most dangerous securities. These “high maintenance” stocks are capable of dispensing significant rewards, but frequently dispense continuous pain. These stocks are not for everyone.
If you should ever forget any of these valuable lessons, dear investor, just place an ad on Match.com…and you will quickly remember them all.
