This article originally appeared on Fool.com
WASHINGTON, DC Jiddu Krishnamurti spent his life giving spiritual talks. As he got older, he became more candid. In one famous moment, he asked the audience point-blank if they wanted to know his secret.
He whispered, You see, I dont mind what happens.
Ive spent the last five years as an investor trying to do the same. Ive made a concerted attempt to care less about what happens in the investment world. I still pay attention, of course. Its my job. But Im far more selective about what I read. It has helped more than I could have possibly imagined.
Caring gives a false impression that what youre thinking about is important. If I pay attention to quarterly earnings, shouldnt I be a better investor? If I check what the market did this morning, am I not more informed?
Common sense tells you yes. But its wrong. More often than not, not caring is the way to go.
My journey started with a realization that the more media investors paid attention to, the worse they did. The more they analyzed, the more decisions they had to make. The more decisions they made, the more chances they had at being wrong, letting their emotions take over, and doing something regrettable. Find someone who has mastered personal finance, and youll find someone with a pathological ability to not give a damn.
There are so few exceptions to this rule its astounding. Where is the evidence that paying attention to every last piece of market news makes you a better investor? Ive looked. I cant find it.
So I stopped caring about a few things.
1. Finding the perfect portfolio
Investors crunch numbers to find the perfect number of international stocks they should own at a certain age, the precise amount they should allocate to bonds, and exactly when they should cut back on stocks when historical models show theyre overvalued.
Heres the truth: None of these models are perfect, so back-of-the-envelope, good enough estimations will usually do just fine.
Harry Markowitz won the Nobel Prize for creating modern portfolio theory, a formula that precisely calculates the optimal asset allocation to maximize return at a given level of risk.
With his own money, he found this too complicated.
I visualized my grief if the stock market went way up and I wasnt in it or if it went way down and I was completely in it, Markowitz once said. So I split my contributions 50/50 between stocks and bonds.
Good enough.
2. Quarterly earnings
The median company in the S&P 500 was founded in 1949. So its 66 years old. Therefore quarterly earnings tell you what happened in the last 90 days, or 0.3%, of its life. The odds that groundbreaking developments will occur in such a short period of time are slim, and they approach zero as time goes on. Its the equivalent of judging how your day is going by analyzing the last four minutes.
Amazon.com CEO Jeff Bezos says he runs his life on a regret minimization framework. His goal is to look back at age 80 and regret as few things as possible.
What are the odds that Ill be 80 years old and say, Man, I wish I paid more attention to Microsofts Q2 2011 revenue? Pretty low. So I choose not to care.
3. Wondering why the market fell
The Dow fell 0.4% a fewWednesdays ago. Why?
Lots of reasons were given. One article blamed fluctuating interest rates. Another cited Greece worries. Others pointed to the Fed, weak GDP growth, and falling energy prices.
Random, unidentified marginal sellers were a little bit more motivated than random, unidentified marginal buyers wasnt mentioned. But its the best explanation for why stocks fell. The same goes for almost every day.
4. Getting other investors to agree with me
Lets say your weather app says itll be 78 and sunny tomorrow, and mine says it will be 74 and overcast.
Would we argue about this? Go on TV and duke it out? Call each other names?
Of course not. Wed say, Eh, lets just see what happens. Probably doesnt matter either way.
Investors dont think this way. The fights people get into about whose forecast is right are off the charts.
Unlike weather, money is an emotional subject. And unlike tomorrows temperature, our investment decisions are in our control. So many investors get offended when others disagree with them. But once you realize that A) your views are just as biased as everyone elses and B) theres a good chance youre both wrong, you stop seeing any reason to argue. Debate, sure. But lifes too short to argue.
Investing is so much more fun when you come to terms with these things. Set up a portfolio that suits you one that lets you sleep at night and gives you a reasonable chance of meeting your financial goals. Give itroom for error. Have a backup plan. Its the best you can do.
After that, you see, I dont mind what happens.
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