Thursday, December 28, 2017

The Art of the Good Life #3 : Inflexibility as a Strategem

Inflexibility is normally seen as being irrational.

The book uses the example of the CEO who has a no tolerance policy towards eating dessert. He can easily wait for the dessert to arrive and then refuse to eat it. Instead, he always makes it a point to ensure that the dessert was struck off the menu even if it already part of a paid set meal.

For the past 15 years, I have also used inflexibility as an investment strategy. No matter how attractive the stock was, I will not invest in it unless it gives out a decent dividend which is pegged at around 6% for my core portfolio and 4% for my CPF assets. This was because I'd like to be paid for holding onto my counters.

This policy has not been easy to follow.

I read a lot of brokerage reports and knew that stocks like Best World was doing well even before the uptick started. Also, moving forward, I am also extremely bullish about counters like iFast even though I did not buy any. But my dividend policy ensures that I can only  mope when these stocks become multi-baggers.

The reasoning for insisting on dividends is simple, missing out on bigger dividends may give me counters like iFast and Best World but I might end up owning other stocks which may halve in value when they are hit with a negative surprise. Growth stocks tank really badly when there is no dividends to cushion the blow. No one remembers the growth stocks that petered out.

With a much larger portfolio size, I can now use back-testing to determine which stocks to invest in so I no longer follow such earlier maxims. Now my investment portfolios must be back-tested.

As it turns out, inflexibility is a powerful tool  because it helps you conserve your willpower which is a finite resource. After every meal, we replenish a store of willpower that we deplete whenever we are forced to make a decision. When these reserves get depleted, we start making mistakes in our work. When we choose to be inflexible about something, we avoid making a decision because it is, in essence, already made for us.

This is why the most productive and creative professionals design a life around making the fewest decisions throughout the day. Having a fixed work uniform means not ever having to make decisions on fashion. Getting set on a fixed breakfast menu means not having to make a decision on what to buy for a meal.

Minimizing routine decisions is only winning half the battle. The other half is mustering your cognitive resources to make the decisions that matter during your day.

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