September 14, 2006
Smith Barney doesn’t manage this portfolio. My heart does.
A conservative, long-term investor, I'll still admit to my sometimes ridiculous attraction to the highs and lows of risk.
Question is: How much can
I -- or anyone -- really handle?
At 22, I'd fearlessly seek the beta -- or risk factor -- in anticipation of the alpha -- or excess -- returns. I'd diversify my portfolio, but often follow a hot dot, whose value would quickly double, drop, then creep back up. When the market tanked? I reveled in my seemingly endless time horizon.
My strategy began to shift after some market volatility, which, combined with maturity lent a better understanding of my own assets and risk tolerance. I became more moderate, investing in diverse, well-researched stocks for a longer-term gain.
Still, my rate of return seemed nominal.
At times, I'd considered leaving the market altogether, but trusty advisers would encourage me to stay the course.
Investment decisions are best executed without emotion, they'd say. Yeah, right, say I.
See, Smith Barney doesn't manage this portfolio. My heart does. Disturbingly analogous to the omnipotent stock market, in dating, the alpha of a long-term relationship drives us to invest even more: our hearts, minds, bodies and souls.
We'll work diligently to review and build our personal assets (be it career, hobbies, looks, personality or all of the above); establish our search criteria (determine characteristics of a partner); and perform severe -- if often frustrating -- due diligence (dating the gamut to find that sometimes elusive, but impassioned and fabled, soul mate).
As our investment pool in this feverish search shifts, so do our emotions and risk tolerance -- often dramatically. And sometimes unexpectedly.
High-risk (newbie) investors might trade short-term losses ("just hanging out") for long-term gains (dating for crazy love). Moderates (more mature) might accept some risk (getting back out there post-burn) for higher ultimate returns (falling in love ... again). Lowest risk takers (seasoned cynics) may seek the safest route (maybe even ... gulp ... settling).
At 22 and for a while thereafter, the process was thrilling. Working to build my own assets, I was myself an actual beta -- figuring my way and learning fancy investment terms while marathoning my lifestyle.
My diversified portfolio included mostly my peers: the drummer, the elevator crush who made me blush, the student, the party-guy who might actually call, the tree-hugging college friend, and even the swamped getting-established professional. My relationships gave me butterflies and stomachaches, but I withstood the volatility, hoping for high returns.
The alpha on these short-term buys sometimes seemed negligible, but experience built my assets for the long term. It also lowered my risk tolerance -- a dangerous bout in my maturing stage, wherein people have paired off, leaving bounds of skeptics.
What was "edge" seemed like attitude; opinions became stubbornness. "Stability" translated to boredom; "Fun" often meant noncommittal. And as I became more selective, my investment pool downsized.
Determined still, I went moderate-to-low with lower-betas who seemed ready to commit: the great guy my age, the goal-oriented (too busy) professional and the creative guy who knew how to channel it.
Ratings seemed positive, but earnings ultimately disappointed. Our stock split, and hearts got broken.
Perhaps my search criteria was askew; I considered old standbys, friends; I diversified madly to mitigate losses, but my risk skyrocketed with my diminishing tolerance and time horizon.
Should I seek growth or the undervalued stock? Hedge? Strattle? Bail out? Or, shoot endlessly for off-the-chart heart-jumps that put me in the red, then black within a matter of days?
Not quite ready to index, I sought value with potential growth. I still sought the beta.
After a market slump, and bordering the defeatist pull-out, a tip off to a charming, intelligent (younger) option surfaced. I'd stay the course for long-term growth, I thought.
First, it was blissful and fun; carefree and light; we'd stay up late and dance around who liked whom. He called me "hot" instead of pretty, bought me chocolates and wrote me sweet cards. He called too late.
And the best part: he believed in "the one." The one!
Things were swell until liabilities in my beta's limited repertoire emerged. He struggled to fully identify with me. My skin felt comfortable; his was still filling out. He wasn't cynical, which, to me, meant he didn't reflect.... Or maybe, at 25, hadn't yet lived.
Despite my short-term disappointment, I'd already learned to sell out sooner in lieu of a more "appropriate" investment.
See, while he was still diversifying, I was -- apparently -- ready to focus my assets.
General rule says: the greater the risk, the greater the return. And in today's rough relationship market, determining risk tolerance may indeed help assuage some long-term "damage." Problem is: it may also risk a lower alpha.
And that's no fun.
Maybe -- ultimately -- we're all just betas making our way; our yields to maturity are just different.
Dara Lehon, a freelance writer living in New York City, can be reached at email@example.com.