Benefits of Constraints in Wealth, Money, and Investing
What can a Moon-landing mishap teach us about money and investing
Actual events inspired a famous scene in the Oscar-nominated Apollo 13 movie where astronauts flying to the Moon must assemble a life-saving air filtration component only with the parts available on the spacecraft. These unexpected constraints lead to a spurt of ingenuity and creativity. When I think of wealth, money, and investing — constraint is not the first word that comes to mind. It’s quite the opposite. Limitless abundance might be a more intuitive image, but aren’t constraints our true friends that help us flourish?
In today's fast-paced world of ease and immediacy, constraints aren’t exactly welcome. However, this belief might not serve us well when looking for investment opportunities, allocating capital, and managing wealth.
Constraints can be powerful tools for enhancing decision-making, allocating capital effectively, and living a life of wealth and financial independence.
Screening for Investment Ideas
One area where constraints play a crucial role is screening for investment ideas. When faced with a vast number of potential investment options, it can be challenging to make informed decisions. However, by incorporating constraints into our screening process, we can significantly improve the quality of the investment process. I recently spoke with Algy Hall, a renowned expert in stock screens, who explained how using such filters helps avoid common pitfalls and focuses on identifying winning stocks.
I see it as a helping hand that can keep our speculative tendencies at bay while letting the inner long-term patient investor shine.
Capital Allocation within the Business
As the old saying goes: “Rough seas make good sailors” in business; tough times make the best business even better. I’m thinking of the last crisis, the COVID pandemic years, with echoes still around us. As stockpickers analyzing individual businesses, we see how difficult years bring heightened discipline. The available capital might be constrained, expenses must be kept in check, and new revenue opportunities are worth considering. In my recent recording with an investor, author, and diligent stock analyst — Todd Wenning, we discussed how a crisis forges future winners.
Even the best business may get too comfortable when the times are easy. As much as the experience isn’t pleasant, the challenging years help managements sharpen their focus.
Living within the Confines of Wealth
When we think of substantial wealth, especially the one that arrives somewhat suddenly, constraint is not a word in our immediate vocabulary. It may feel like a time for a splurge, a more lax approach to spending, or even some adventurous, less vetted investment choices. As soon as we think, though, some of us instinctively realize that’s not entirely true.
I had a wonderful long conversation with a fellow family wealth expert, Frazer Rice. He used a phrase that struck a chord with me. He explained how we must learn to live within the confines of our wealth. It applies to everyone, no matter what their net worth might be. What might prove surprising and contrary to popular belief is that even individuals with substantial wealth must find a way to live within the confines of their wealth.
Through my experience, I noticed how the proper framework when it comes to both spending and investing choices can make wealth not only last but also grow. It also helps keep worries in check.
I don’t envy the Moon-traveling astronauts and their life-or-death battle to assemble an air filtration component. That story, though, makes me appreciate chosen and often self-imposed constraints. They should not be viewed as limitations but as valuable tools that can help us navigate the complexities of wealth, money, and investing. By screening for investment ideas, allocating capital effectively, and living within the confines of wealth, we can make informed decisions, maximize returns, and lead fulfilling lives. So, the next time you question the value of constraints, consider the potential advantages they can offer. Maybe even turn them into a friend to value instead of a foe to fear.
Happy Investing!
Bogumil Baranowski
Published: 11/23/2023
Disclosure:
The information provided in this article represents the opinions of Sicart Associates, LLC (”Sicart”) and is expressed as of the date hereof and is subject to change. Sicart assumes no obligation to update or otherwise revise our opinions or this article. The observations and views expressed herein may be changed by Sicart at any time without notice.
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