Optimization vs. Micro Management

Optimization vs. Micro Management. We should have an objective, choose our path to that objective, and follow through. We can adjust when necessary. But it's important to remember that the challenge is to meet our goal, not necessarily find the best way to meet our goal.
I like to think that I'm naturally lazy, but  responsible enough to do the things I need to do. The fortunate mix is that I tend to find the most efficient way to get things done. As such, I'm a big fan of efficiency and optimization.

However, there's a side to it that isn't that great and I've since learned to avoid.

Previously, I wrote about the danger of getting caught up in our "sideline." In that case, I was risking more than I could have potentially earned in my investment.

That's where I think the law of diminishing returns comes in - the cost was just too much more than the possible reward.

Take as an example cost-averaging. For a long-term investment I could invest twice a year, or quarterly or even monthly. Could I do it bi-weekly? Maybe. How about weekly? If it's still practical... What about daily? A little ridiculous right?

But if you think about it, that would be the "ultimate" cost-averaging. You've taken advantage of every rise and dip in the market.

But is it any more effective than cost-averaging monthly? I bet it wouldn't make a big enough difference to make it worth it.

Same thing with diversification. If I have 10,000 pesos of my hard earned savings, definitely I should take steps to protect it. Let's say this is strictly for stock buying (as I already have a diversified mutual fund), should I still take steps to diversify? Sure we could buy two different stocks instead of just putting it all in one.

But stocks worth Php50 and up can now be bought in 10s (instead of 100s)- an investment of just 500 pesos. Should I "take advantage" and diversify even more? Not really. With anything below 5000 pesos, you're actually paying more (percentage-wise) in fees and taxes - which means it will take longer to turn a profit.

And the same is true for the investments we make. We can't just switch every time a promising investment comes up. We should have an objective, choose our path to that objective, and follow through.

We can adjust when necessary. But it's important to remember that the challenge is to meet our goal, not necessarily find the best way to meet our goal.



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photo credit: El Bibliomata via photopin cc

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