Welcome to the end of the week and another edition of Happy Hour! Just sit back, relax, and enjoy your end of the week roundup of all things interesting in the land of money.
Paying What It’s Worth
We’re used to paying full price for hings and if not full price, then sales price. With the number of constant sales going on, you could argue sales are really full price disguised in as shiny red tags. Anyways, what if you could pay what you thought something was worth?
Rather than paying full price or sales price, there was no sticker price at all. You paid (or didn’t) what it was worth to you. This idea was tested by the folks at Freakonomics and came to an interesting conclusion.
Overall, people are more generous when given the choice. Sure, some will take advantage of the “free” aspect of it. Funny enough, adding a charitable donation tag line actually made the most money for the company. We’re generous when there is a good cause involved.
Even more telling, the mental math done to come up with a pay what you want price added a premium to the item. In other words, people overpaid for the item. Either we’re very generous with our money or we’re not great at putting a price on things. Generosity aside, we see the latter all the time with investing.
We’ve all played the deserted island game, right? So you’re stranded on a deserted island and you can only bring one thing, what would it be? The one thing you couldn’t live without for the next decade. Usually the question is more specific with one music album, or one movie, or some other ridiculous thing that you’d be tired of after two weeks.
What if the question was: what one stock would you bring, or asset allocation would you set, or investment portfolio would you build, knowing you couldn’t touch it for a decade? It’s the picture of a true buy and hold portfolio.
This idea came from a Research Affiliates article. It gets a little technical. The short version goes like this: they built a long-term, deserted island portfolio focusing on funds of undervalued assets and didn’t touch it. It’s no wonder undervalued outperforms, it always has.
But the bigger message is in sitting on your hands. Build your portfolio as if you’ll be stuck on a deserted island, untouchable for ten years. Then leave it alone.
- The Things You Shouldn’t Pay Attention To – I partially agree, it’s good to know what’s going on, don’t rely on it for investment decisions.
- Unplanned Early Retirement? Spending Time in These 3 Areas Will Pay Off – great advice for premature retirees.
- The Hidden Costs of ETF Investing – be aware of the bid/ask spread.
- 10 Ways to Wipe Out Your Retirement Savings – or just do the opposite.
- When Buffett Was Right, but We Were Too Scared – there’s always a reason not to invest, success starts by seeing past it.