Invest In Industries/Regions Beyond Your Job/Location

“Black swan jan09” by Taken byfir0002 | flagstaffotos.com.auCanon 20D + Canon 400mm f/5.6 L – Own work. Licensed under GFDL 1.2 via Wikimedia Commons – https://commons.wikimedia.org/wiki/File:Black_swan_jan09.jpg#/media/File:Black_swan_jan09.jpg

Sleep per Day: (Target) 7h30m / day (Actual) 7h29m / day (92 day average)

Rare and improbable events do occur much more than we dare to think.

So when you invest in industries and regions close to your job and location, you’re essentially doubling down on that specific industry / region.

What this means is, if your industry / region is going through tough times, not only is your main source of income (for most of us) in danger, the investments are also going down the drain at the same time.

You might end up with nothing, which is akin to going all-in in Poker but ending up losing the bet.

But what about those who claim you should invest in things that you’re very familiar with? Surely you can only develop such circle of competence to judge whether a specific company in that industry / region is a great investment or not if you actually work / live there?

There are a few perspectives regarding this question, which is namely:

  • You might work / live there, but you may over-estimate your ability in judging whether a specific company is a great investment since it requires both business analytical skills and financial analytical skills
  • You may further over-estimate your ability in judging whether a specific company is a great investment simply due to your character (not willing to drill down into details of company or practice second level thinking)
  • And if you don’t suffer from the 2 problems mentioned above, you shouldn’t go all in. Leave enough cash reserves and investments that aren’t of your job / location so that if the investments that are of your job / location go completely bust you still have enough to start over again without drastically reducing the quality of your lifestyle.

Even the strong advocate of concentration Charlie Munger doesn’t recommend going all in, instead encouraging people to at most invest “almost all wealth invested, long term, in just three fine domestic corporations“. Notice how he said “almost all” instead of “all”, and to make at least “three” bets instead of “one” or “two”.

Never go all in, because you never know when black swan events will happen to you, even if the probability is low.

[Disclaimer]

Not advice. No offer. Do not rely. May lose value. Risky. Conflicts hidden/obscured. (Borrowed from Terrence Yang‘s Disclaimer on Quora)

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