Overview – Don’t Be Afraid to Put Your Interests First
At a young age, we’re taught that being selfish is an undesirable trait to have. We’re told that when it comes to our interests or the interests of a larger collective, then the collective interest is the one that takes priority.
While learning to look out for the interests of others in certain contexts is an important trait to have, this doesn’t always apply when it comes to investing.
There are millions of investors out in the world, all of who have their own goals, agendas, and other objectives they want to work towards. The only thing the vast majority of investors are concerned with the most is making sure their needs and self-interests are met.
Although this sounds a bit pessimistic, this is simply the way of the investing world – it’s very unlikely that other investors will care as much about your self-interests as much as you do. Therefore, it’s not surprising that if investors feel their interests aren’t being met, they won’t hesitate to look elsewhere.
If you want to make the most of your investing career and ensure that your goals are satisfactorily met, then you must learn to stand up for and fervently defend your investment self-interests because nobody else will do that on your behalf with the same intensity.
Self-Interest is the Driving Force Behind the World
Whenever the word “self-interest” is brought up, many people are quick to associate it with some very negative connotations. Even worse, some people are quick to conflate “self-interest” with “selfishness”.
But is self-interest as evil as some people make it out to be? Let’s pick apart this idea by way of example.
Most people work not because they have some deep sense of duty (though some do), but rather because they need some way to financially support themselves and those who are dependent on them. No sensible person would get mad at someone for going to work, even though the underlying reason behind working in the first place is driven by self-interest.
People buy vehicles not because they want to support the companies that sell them, but because they want the freedom to go wherever they want, whenever they want to. Nobody gets mad at others for purchasing a vehicle, even though the reason behind owning one is, again, motivated by self-interest.
The entire economic and global system works not because we all deeply love and care for one another, but because we all have self-interests we wish to satisfy. It just so happens that the self-interests of one party end up benefitting another – the world is simply this but on a much larger scale.
In the words of Adam Smith, who is widely known as the “Father of Economics” and for laying down the foundations of classical free-market economics: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect to eat our dinner, but from their regard to their own interest.“
Similarly, the world of investing is also driven primarily by self-interest, although this isn’t always explicitly stated.
For example, when a company decides to issue stock to the public, they do so intending to raise more money to help expand their operations. The investors who decide to buy shares of this stock do so not because they love the company and what they do (although for some investors this may be the case), but rather because they wish to gain some sort of return on their capital.
When a government or business decides to sell bonds, they do so because they wish to pay off their outstanding debts, not because they wish to provide investment opportunities to the public. Investors who decide to buy these bonds do so because they want to collect the interest payments it offers, not because they want to help repay someone else’s debts.
If you think about it, every single investment transaction is simply just two (or sometimes, more) parties who wish to gain something, and by going through with the proposed transaction (the sale of an investment instrument in exchange for capital) the self-interests of both parties are satisfied.
Investors Who Manage Their Own Portfolios Don’t Have Any Obligations
We’ve previously looked at how investors fall under different categories, and how each class of investor does things differently. Institutional investors work with large sums of money and invest on behalf of other people, whereas retail and accredited investors tend to manage their own portfolios.
Institutional investors are usually the elephants in the room, and whenever they make major investment moves news outlets are quick to pick up on them. Despite their size, influence, and financial clout, institutional investors are obligated to follow the wishes of their clients; after all, the money they have to work with isn’t theirs, so the interests of their clients come first.
One of the nice things about managing your own portfolio is that you aren’t obligated to do anything for anyone. You have full control over how you want to deploy your capital, and how much capital to allocate to each investment operation you pursue. Nobody has the right to tell you how to deploy your own capital; it’s your money after all.
Put another way, if you manage your own portfolio, then you’re free to pursue your investment self-interests how you see fit.
Are you enjoying strong returns in the oil and gas industry, and are interested in increasing your stake? Go for it. Do you feel that the mid-sized company you’re currently invested in isn’t providing you with the returns you want? Then divest. Do you happen to have a knack for assessing promising companies in the defense industry? Then use this talent to the fullest extent you possibly can.
Accredited and retail investors aren’t shackled when it comes to their freedom of choice, so they can pursue their investment self-interests however they please, regardless of what other people tell them.
Sure, news outlets and prominent people may encourage investors to take certain approaches such as focusing on ESG and investing in “ethical” industries, but these are ultimately just opinions, meaning you don’t need to listen to them if you feel that your investment self-interests won’t be satisfied by doing so.
Investors who manage their own portfolios aren’t obligated to do anything for anyone. Because of this, they need to remember that if they feel that their interests aren’t being satisfied, then they have complete freedom to go where they feel it will be.
If Your Investment Self-Interests Aren’t Being Met, Then Look Elsewhere
What do people do when they feel that their current job is treating them poorly or isn’t paying them enough? They look for a new job that treats them better or pays them more.
When a business feels that they aren’t generating enough revenue to justify continuing operations in a certain location, what do they do? They shut down operations and move to a location they believe will be more profitable.
If parents feel that the community they live in isn’t safe for their children, then the logical step would be to move to one that’s safer and has an environment more conducive to raising a family.
Time and time again, whenever a person or organization’s self-interests aren’t being met, they get up and look elsewhere where their interests have a higher chance of being satisfied. This is something that happens every day all over the world, and we accept that this is simply how the world works.
If people and organizations are always looking for new ways to satisfy their self-interests, then what’s stopping investors from doing the same thing?
Investors have every right in the world to take their capital where they believe will give them the most benefit. Companies and other institutions that seek investment capital have no right to force investors to stay – after all, if they truly were worthy of investment, then investors would happily come to them of their own volition.
The longer you insist on staying with a bad investment or dealing with lackluster opportunities out of some misplaced sense of duty, the only thing you end up doing is digging a deeper hole for yourself.
When you’ve ascertained that your investment self-interests aren’t going to be met under the current circumstances you find yourself in, then start looking elsewhere as soon as possible.
Besides, if you don’t stand up for what you believe is beneficial to you, then who do you expect will do so on your behalf?
If You Don’t Stand Up for Your Investment Self-Interests, Then Nobody Else Will Either
To ensure the needs or concerns of investors are met, there exist certain groups that do that.
One such group is the Board of Directors, which we know acts as a sort of corporate watchdog on behalf of the shareholders. The Board makes sure that the management team is actively working toward creating the most shareholder value they can, within reasonable limits, of course.
Another group is the regulatory bodies. As we know, the SEC is the federal investment regulatory body in the U.S., whereas in Canada this job falls under the purview of provincial regulatory bodies. Their job is to provide the necessary information investors may need (annual reports, annual reports, etc.) while also punishing those who give themselves an unfair advantage over others (i.e., prosecuting those who perform prohibited insider trading).
While these groups serve to protect and represent investors, what they won’t do is stand up for an investor’s self-interests on their behalf.
Investors need to understand that they are responsible for being the #1 advocate of their self-interests and that nobody else will have the same level of intensity when it comes to defending those self-interests.
Again, this isn’t limited to just the world of investing but can be observed in everyday life as well. When was the last time a stranger asked you if had enough to eat today, if you have enough clothes in your closet, or if you have paid all your bills on time?
Everyone has their own personal problems and concerns they need to worry about, so it’s only natural that they make sure they take care of those before prioritizing the problems and concerns of others.
Similarly, nobody will go out of their way to make sure your portfolio is doing well, check to see if your investment strategies are producing results, or ensure you’re on track to meeting your investment goals. When a market crash happens, you’ll never hear of investors feeling sorry or shedding tears for those whose portfolios were affected.
If you don’t learn to stand up for what you believe will benefit you, then you’ll soon find yourself being left behind by those who aren’t afraid to do so.
Wrapping Up
Every investor seeks to accomplish different things, so it should come as little surprise that every investor has their own self-interests they wish to satisfy to help them achieve the goals they have in mind.
For some people, “self-interest” is quickly conflated with “selfishness”, and as a result, some very nasty connotations come to mind. However, people go to work to earn money for themselves and buy cars to go wherever they want – do we get mad at these people for doing these things, even though they’re intrinsically motivated by self-interest?
Investors are no different – the decisions they make are made to ensure their needs are taken care of. No sensible person would get mad at someone for simply wanting to take care of themselves, now would they?
Unless they happen to be a professional fund manager, investors aren’t obligated to do anything for anyone – they’re free to decide where to deploy their capital. If they feel that their self-interests aren’t being met, then they have every right in the world to look somewhere else that will meet them.
If you don’t build up the courage to stand up for your investment self-interests, then don’t be surprised when nobody does so on your behalf. After all, other investors already have their own problems to worry about, so why would they take the time to stress over yours as well?
