Oh, Go On

The Hardest Part.

Most investors don’t fail because they’re wrong. They fail because they’re human.

We show up to markets with emotion, ego, fear, and overconfidence. And a deep need for randomness to make sense...then we act surprised when those traits get punished?

The market isn’t just a pricing machine. It’s a behavioral sorting mechanism. It transfers money from people who can’t manage themselves to people who can. Which is why good investing's first principle is avoiding unforced errors. Or, more practically: increasing the odds that you won’t regret your decisions later.

That idea sits squarely inside regret aversion — our tendency to make the decision that we think we’ll feel better about in hindsight. But here’s the part most people miss: the goal isn’t to eliminate bias. That’s impossible. We are human, and we are wired to error.

The goal is to acknowledge bias and build around it.

Sometimes, even, the “biased” decision is the right one — not because it maximizes returns, but because it minimizes the chance you do something you can’t recover from.

A quick example: when I have a client who "loves how Rubin invests" but gets that itch to swing the bat, I encourage them to create a cowboy account. Go take 5% of your money and do whatever the hell you want — if it increases the odds you won't touch the 95% that I get to manage, I think I can get us across the finish line.

You get your kicks that enable you to stay in your seat, and entrust me to keep the main thing the main thing.

Risk is not volatility.

Finance loves to measure risk with volatility and ratios. They’re useful tools, but they’re also deeply incomplete.

Volatility feels like risk because it’s visible. Prices move. Statements change. Our brain labels that discomfort as danger.

Meanwhile, investments that don’t mark to market every day — private equity, real estate, even homes — feel safer largely because we don’t get constant feedback. Cliff Asness calls this volatility laundering. It's not real, but it's easy to sell. Everyone knows an Uncle Morty who paid down a mortgage every month, couldn't track the value of his home changing every day (even though, technically, it did), and then 25 years later is handsomely rich in home equity.

If you bought the stock market, added to it every month, and didn’t look at it for 25 years, you’d probably conclude two things: the stock market is (1) awesome, and (2) far less scary than it feels on a daily basis.

Ken French has the best definition of risk:

Risk is uncertainty about lifetime consumption, broadly defined.

Not volatility. Not tracking error. Not Sharpe ratios.

Risk is uncertainty about whether you can actually live the life you want to live.

"Lifetime consumption" is also a critical part. It is an inflation-adjusted idea — that you get to do what you want in the future, and whatever it costs at that time. People who want to "retire once they hit $5M" are not thinking about inflation, and that's extremely dangerous. No one knows what $5M will buy you in the future.

"Broadly defined" is also critical. No professional knows your version of a perfect day/life. It may mean champagne and caviar, or it may mean giving millions away to charity. But perfect days have prices (some low, some high), and the probability of living them can be modeled.

Risk IS probability and magnitude.

Before The Psychology of Money made Morgan Housel a household name, he wrote a short piece called The Three Sides of Risk. It’s the single most useful thing he’s written for investors.

The insight is straightforward and widely ignored.

Risk isn’t just about what might happen. It's about how bad it could be if it does.

There are three sides:

• The odds you get hit.

• The average consequences.

• The tail-end consequences — the ones that actually matter.

  
  

Take seatbelts:

• Most days, wearing one does nothing.

• If something does happen, most accidents aren’t catastrophic.

• But in the small number of cases where things go really wrong, a seatbelt is everything.

That’s why we wear them. Not because they usually help — but because there’s a small chance they help everything.

That’s the second-order thinking required to calibrate risk. Probability tells you what’s likely. Magnitude tells you what matters.

Sensible investing looks boring.

When I push investors away from concentrated bets — one stock, one theme, one “can’t miss” idea — it’s not because I’m convinced it won’t work.

It might work. It might even be likely to work.

But, hear me out, markets probably aren’t just giving away free money.

And the real question isn’t, “What if I’m right?” It’s, “What if I’m very wrong?”

Once you accept that markets are hard to systematically outguess, future outcomes start looking like distributions of possibilities. Luck plays a much larger role than most people are comfortable admitting.

So when evaluating risk, come back to three questions:

• What are the odds this goes badly?

• If it does, what’s the most likely bad outcome?

• And if it goes spectacularly wrong, how bad can it get?

  
  

The reason I advocate for sensible, "boring" investing isn’t because upside doesn’t exist. It’s because tail risk dominates everything else.

Most people don’t need heroics to live the life they want. They need durability. They need portfolios that survive bad luck, bad timing, and bad decisions — especially their own.

When you start with, “What does a perfect day/life for my family actually look like?” the portfolio that follows is usually far more conservative than Wall Street wants to sell you.

Not because it’s optimal on financial metrics — but because it avoids potentially ruining your life.

The Bias Cocktail That Wrecks Investment Journeys.

Many of the worst investing decisions come from the same three biases, working together:

• Endowment effect: we overvalue what we already own.

• Illusion of control: we think our involvement improves outcomes.

• Status quo bias: doing nothing is easier than doing something.

  
  

It’s brutal.

Because we already own something, we assume it will work out. Because we believe we have insight, we underestimate risk. And because change is uncomfortable/has frictions, we stick with the decision.

The issue isn’t that this happens. The issue is that it happens constantly. Meaning the probability is high, and when it goes wrong, the magnitude can permanently impair a financial plan.

This is why we need structure, rules, and constraints.

Our Plight.

Being a pea-brained human is hard. We can't find keys or phones. We can't remember what we ate or where we were trying to go.

Yet somehow we will pick the perfect stocks and own them for the perfect amount of time?

Oh, go on.

If we want to be good investors, we must work around how terribly we are wired to be so.

End.