How Making Mac-n-Cheese is Like Investing
July 18, 2014I was talking with my friend Diane recently and she told me a story about a visit she made to her daughter’s house. Here is her email recap of a portion of that visit:
“I was at my daughter’s house for dinner this week and mac-n-cheese was on the menu (only the best for her momma). I was trying to help cook but was told I was making the cheesy staple “wrong.” Mandy is adamant that all the butter is melted before she adds milk or the powdered cheese. It tastes best that way she says. In fact, when I asked a number of people in my extended family about the making of this culinary delicacy, I found there are actually multiple “right “ways to make mac-n-cheese:
1 – My daughter’s way of making sure the butter is melted before proceeding to any other ingredients
2 – Exact timing of the noodle boil to ensure they are done perfectly
3 – Precise measurement of any added ingredients
4- Don’t use the boil kind but the microwave kind as the cheese is better”
I asked my kids, mac-n-cheese connoisseurs that they are, about this and they had their own opinions. I heard that the milk has to go in first and butter last. That was a point made with some passion! I heard that you add some other “melty cheese” to it while it’s still hot so that it tastes a little different each time. I also heard about adding different spices (a no-no with some, yet preferred by others). And I heard that they like it best when I make it from scratch using a bunch of different cheeses. Who knew that mac-n-cheese could have so many derivations and could drive so much passion?
That reminds me of the world of investing. I have heard that buying and selling stocks on a frequent basis provides the best results. I have heard that the buy and hold strategy is the best. How about low cost index funds being the best? Or, index funds for most asset classes and actively managed funds for small cap, emerging markets and alternatives? Target date retirement funds. ETF’s. Actively managed funds. High dividend stocks. There are many other investment strategies/models that I’ve heard over the years to be the best way to make money over the long haul. Which one is right?
The answer to that is simple. All of them. Or none of them. The one that works best is the one that a person can stick with for an extended period of time and that allows you to maintain your emotional restraint during bad times in the market.
One of the things that makes me want to scream (that list seems to be growing recently…) is all of the attention paid to investing. I see the screaming guy on cable TV telling us to buy or sell a stock, people going crazy for Apple, Google or GoPro stock, countless emails about how to make money in stocks, books stacked a mile high on different investing strategies. There is no shortage of information or theories or advertising about “this is better than that” regarding your investments. That is all a bunch of noise though and it prevents people from seeing the big picture.
What’s the big picture? It’s that most of the noise out there in the world of investing is to some degree irrelevant. That sounds like a pretty bold statement. How can I justify it? Here is my simple response. In 2008, when the stock market was dropping faster than a watermelon thrown off David Letterman’s studio roof (I still love “Stupid Human Tricks”), there was one sure way to not lose money. Cash! In ’09–’13 when the market was on a straight up trajectory there was one sure way to under-perform. Cash. People get so caught up in the noise, the sizzle, the excitement of what investment strategy to employ that they forget that the overwhelming factor (I’ve seen it anywhere from 80-90+ percent of overall returns) in determining how your portfolio will perform is the top line decision of how much you invest in stocks vs. bonds vs. cash.
What is your long term asset allocation decision? There are NOT millions of books about that decision. It’s too vanilla, too simple. There isn’t any sex appeal with that question. Yet, it’s the biggest question in all of investing!
With mac-n-cheese, there are endless ways to make it and everyone has their own preference. With investing, it’s the same thing. Let’s not lose sight of the big picture. If you have mac-n-cheese, make sure you have some protein and some veggies and/or fruit to balance it out and make it a meal not entirely based on carbs. If you invest, look at the big picture and determine your risk tolerance and asset allocation before deciding which of the myriad of investment strategies you’ll employ.