I've been thinking quite a bit about personal finances and my investment philosophy recently. Particularly with various technology billionaires featuring in the news, it's been hard for me to reconcile some of the investment "rules" I've followed with the insane growth of these individuals' net worth. I've come away with these thoughts with 3 conclusions: it's easy to make money if you have money, investment advice is focused on financial stability and not wealth creation, and betting on yourself is different from betting on your employer.

It's easy to make money?

If you have money, it's much easier to make money. I remember after college reconciling my first paycheck with my rent and grocery bill for the month. I remember believing with my whole soul that I was going to be laid off about 6 months after starting my career. Faced with these scenarios, the traditional advice of building an emergency was obvious. If I lost my job, how long could I last off my savings? How much stress would I be under to find a job, and could I wait to obtain a few offers or would I need to grab the first one available? And it wasn't just me, how would my girlfriend deal with that? What would it do to our relationship?

Without an emergency fund (6-12 months of living expenses in a bank account was the advice I internalized), I'm not sure I could have handled the stress. I'm sure it would have broken my relationship with my girlfriend and I don't think I could have taken out the relevant loans to take the time to field "the right" offer. The word is: desperate. I would have been desperate. I put all my savings into a savings account, earning a pitiful 1.05% (I remember thinking about what a great rate that was; different times...).

Once I had an emergency fund, I started squirreling away funds into the stock market via index funds. There was suddenly money that I could afford to risk in investments. And the stock market outperformed my savings account interest rates, so my net worth started increasing. Basically: because I already had money, I could start making more money!

Investment Advice is (Almost Always) Conservative

Traditional financial advice, whether online or through financial advisors, attempts to prevent people from making rash, or desperate, decisions. The advice about building savings, investing into index funds, diversifying across a few different asset classes, rebalancing regularly, not taking on significant debt outside of a home mortgage are all designed to keep you on a path to financial stability via consistent, predictable behaviors. This is the proven way to accrue money through your working career such that you can retire comfortably (obligatory: this is not investment advice).

My recent realization is that this approach, while extremely effective and designed to provide an easy to follow, consistent set of behaviors, is inherently conservative. It says that if I were granted stock or options (proto-stocks) in my employer, I should diversify out of those investments and into index funds as soon as possible. Index funds diversify your risk by placing bets in many more stocks, smoothing some of the bumps that come from being significantly affected by just one company's performance.

But... what if your company crushes it? The examples that most people throw out for why index fund diversification is beneficial are usually Enron or some assortment of dotcom bubble tech stocks. These all makes sense: their value went up until it didn't, and then people's lives were ruined. The advice rightfully points out that half of your index fund outperforms and other half underperforms, and there is no way to know which half your investment will land on during your investment timeline. The worst thing to do, and the reason why such conservative advice is so useful for most people, is that you see the stock price drop and sell in panic or despair, then have to watch the price grow afterwards without your participation in said growth.

My biggest thought while looking at these tech billionaires has been: "they have the ability to personal influence the direction of their company." They are, in so many ways, not betting on the company's performance. They are betting on their own skills (and taking advantage of the tax code, but that's a separate topic). I cannot do this. Even as the ~25th employee at my current job, I do not have enough say in the company direction to say that I'm betting on myself.

Bet on Yourself

If you can, bet on yourself. From the previous 2 points: if I had enough money to handle the rest of my life comfortably (I do not) and I have enough of a say in a company's direction to say that the company's performance is a reflection of my own (I do not), and I believed that I was better at guiding a company than the average executive (I do not), then I should bet on that company's outsized performance. I do not, so I do not.

The thing with all the tech executive billionaires is that they have been able to answer each of the previous questions in the affirmative. All the ones I'm thinking of were born into wealth that I consider "comfortable", so they satisfied that need the moment they were born. They also founded their companies, so have almost exclusive rights to the direction their companies take. And they all share an unbelievable confidence in their own abilities. I'm excited for the day that I, a white male, could emanate that kind of white male confidence.

My thought process then led me down a different path. What about the Gamestop stock owners who gambled on their ability to retire comfortably? Or various cryptocurrency millionaires? Should I be risking it all like these people? Outsized returns only come to those who take outsized risk. But then I remember how I've reacted to my investments dropping in value, even while diversified. I did panic. I did overreact. And I did feel incredible FOMO after seeing the market rebound afterwards without me.

So I will not be betting on myself, at least right now. But I'm not excited for the opportunity to do so! I didn't know this was something I wanted to do in my career till I went through this thought experiment, and now I have something concrete to push towards. Here's to betting on yourself.