Exercise Like the Rich

This past weekend I went for a mountain bike ride with a great friend of mine who happens to own a small chain of photo development stores, a dying business to be sure, but he may have just found the right niche of enthusiast to sustain a nice living.

The ride was treacherous. We went over large roots, rocks, ruts and through all possible unforeseeable circumstance. My friend, a well practiced regular rider, had little to no trouble. Throughout the entirety of our journey, he waited for me just over the next hill. Twice I tried to keep up with him, and twice I was thrown from my bike, first by a tree I saw and could not avoid, and second by a large root i didn't even see. I wasn't prepared for the ride.

This same friend who led me through my first mountain bike ride, often comes to me for financial guidance. While he is spending his spare time reading bicycling and outdoors magazines, and watching shows about extreme sports, I am reading Fortune magazine, The Wall Street Journal, and Kiplinger's Personal Finance. While he spends his evenings working in his basement on his bikes and out on rides with friends, I am in my home office analyzing my portfolio's performance, plotting my next move, setting future goals, and assessing how well I've met my past goals.

Investing is like a sport, if you want to be good at it, you must practice regularly, and the Rich practice. Just like I couldn't keep up with my experienced friend on our bike ride, just like he had to wait for me over each hill, I must wait for him when we discuss investments, I must guide him through the myriad of opportunities, and just as he has improved his skill on his bike and on the trials far from what I could have reached without ever practicing, I have grown and improved my portfolio and investing skills far more rapidly then he has.

Another friend of mine was recently recognized for her outstanding achievements in visual arts. The award came with a cash prize of several thousand dollars. She is an artist and while she does have some investments, her knowledge of investing is very low. She asked me what I would suggest she do with the money. Based on her other investments, I suggested a low cost international index fund for however much of the money she was comfortable investing. She invested half the money, and within a few hours of mailing the check she became very nervous and upset. She regretted sending the money and wished she could get it back. She even got upset with me for suggesting she invest some of her prize money. Thoughts of losing every lucky dime ran through her mind, and what if there was a major emergency (she already had an emergency fund I had previously advised her to establish) that whipped out her savings? Then what? She tried to imagine all of the unforeseeable circumstances ahead, but did not know how to avoid them, control them, or how they would affect her.

Within 24 hours of sending the check, she had called her bank and put a stop payment on it at a cost of $25. Once the money was safely back in her bank account, she generously took out me to a very expensive dinner to apologize for the blaming. She is practiced, experienced, and comfortable with fine dinning.

The amount she had intended to invest was completely inconsequential to me. I have invested sums many, many times larger and not felt a ting of guilt or remorse. After reflecting on what happened, I realized that she had attempted to ride in a bike race without ever learning to first ride a bike. Although she owns bikes, she cannot ride them. She was so out of shape in her comfort level of investing, that this relatively small amount of money seemed like an impossible amount to put at risk. She needs exercise, training, and regular investing to get into shape.

At our dinner I explained my theory of why she became so upset, and suggested she start with a smaller amount, no matter how small, just a little bit beyond her comfort level, and then steadily increase it. She smiled and nodded, and I'm sure forgot a moment later. What was that art thing she mentioned?