A Bad Investment?

As of Wednesday January 20th, we have skied a grand total of one day this season. Even this consisted of skiing a very limited selection of green and blue groomers on all man-made snow. It seems that winter is skipping us this year.

We buy a season ski pass each March for the upcoming season. While buying in advance saves us significant money, it is still not cheap. So is a season pass a waste? Is it a bad investment? The reason that I bring all of this up is that it provides a perfect real life analogy to what many people are experiencing with the current stock market volatility.

UPDATE

IMG_1697We woke up Saturday with this little one-day deposit from “Jonas” in our back yard, but the remaining message/concept still applies.

Expectations?

We purchase our passes with the assumption that we will ski from mid-December to mid-March (12 weeks). It is fairly common for us to start skiing as early as Thanksgiving weekend and into the first week of April (4-5 additional weeks). We only need to ski 5 times to break even for the season. We generally ski at least one day/week through the season.

Do some quick math and you will see that it is an overwhelmingly smart decision for us to buy our passes in this way. There is a very positive expectancy that we will win in the end because the odds are highly in our favor.

Risks?

That doesn’t mean that the decision is without risk. Weather is one risk.  This season may be the first time we lose out.  We have only 1 week left in January, 3 weeks in February (we’ll be away one week) and March looking bleak with minimal snow base. Other risks include getting injured on your first day out, illness to self or family, etc.

Making positive expectancy decisions doesn’t mean that you will win with every decision you make. However, by stacking many small positive expectancy decisions you can stack the odds overwhelmingly in your favor to the point where success becomes inevitable, despite the risks.

Changing Gears

Let’s shift back to applying the concepts of expectancy and risk to our paper investments.  Watching the value of our portfolio plummet can make many people nervous or even sick.  I know this first hand as I listen to my office mate groan and moan every time the markets drop a few more points.

As for us, we have carefully chosen to invest in asset classes that have long track records of providing returns well in excess of inflation. We have chosen a strategy that emphasizes minimizing costs, taxes and behavioral mistakes that could derail us.

We will simply continue to dollar cost average into these investments and rebalance systematically knowing that this further increases our odds of success over time.  Every time something does poorly, we buy more of it knowing that over time those discounted shares have even more potential.

We know in the short term that we may lose.  Some investments may even be losers over the long haul compared to what they have done in the past.  However, by stacking winning bets, we are very confident that we’ve set ourselves up for success.

Math Over Emotions

Over the next few months we will have some decisions to make.  Do we keep pouring large monthly contributions into investments that are tanking?  Do we rebalance as scheduled and buy even more stocks?  Do we buy another ski pass for the upcoming season?

We’re human.  We hate seeing the graphs charting our progress to FI moving in the wrong direction.  We get frustrated looking at bare ground in mid-January when we are desperate for a nice powder day.

However, we know what decisions place the odds in our favor.  We’ll keep putting math over emotion.  We’ll be buying…stocks and season ski passes.

Do you understand the concepts of positive expectancy and risk?  Do you have a hard time sticking to them when times get tough?  Do you have any particular procedures , methods or tricks to help you avoid making emotional decisions?  Please share your thoughts below.

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17 comments on A Bad Investment?

  1. A subject close to my heart! 🙂 Please tell me you climbed up onto your roof and dropped onto that table pillow… just kidding! Considering the snow we’ve had this year, I’ve been out shockingly few times, though Mr. ONL has done a bit better. Sigh… only two more years until work doesn’t get in the way anymore!

    Though we’re human, too, and also don’t like seeing ourselves make “bad” investments, we do the same thing you guys do — keep investing no matter what, in both our equity funds, and in the things that make our quality of life go up, like our season ski passes. The way we see it, if we didn’t have passes, we would have to face a price decision every time we wanted to go ski, and we’d almost never decide that that particular day was going to be worth $100+ each. So more than potentially being a good value if we ski a lot, a season pass also gives us the freedom from a purchasing choice every time we want to ski — that’s not nothing!

    Hope you guys get some more days in this year, and get some more snow to keep the mountains open!

    1. We didn’t jump on it. We stood little EE on the table to give perspective of how deep that puff was and she destroyed it instantly, before any pics could be snapped.

      You make a great point about the value of having the pass pre-purchased pushing us out rather than having us waiting around for the perfect day. We definitely would not have had in even our first day if we didn’t have our passes because it definitely wasn’t ideal, but it still was a lot of fun and great to get outside. We did get out today and it was pretty perfect, finally!

  2. We’re in the same boat with our Season “Value” Passes bought last April as well. Over the last 10 years of pass buying we have always made out with our passes. This year only 3 days of skiing due to poor snow, and some conflicts. We’re hoping for a very snowy / cold spring. Typically we go out to Colorado for a big ski trip each year, but with the passes not being very “used” we are staying for a ski vacation at our home mountain.

  3. That’s a tough one. Maybe next year will be better and you could look at it as this was just a bad “market” year for ski passes. 🙂
    While we’re still buying stocks and investing, due to our industry turmoil, we’re putting more towards building a strong cash reserve currently. My company is due for some big layoffs, as there haven’t been any yet, Mrs. SSC’s is going to go through another round in her department mid-year, or fall at the latest. While we have some emergency funds built up, we are planning in the event we need cash and don’t want to sell assets at a loss. We’re still investing though, just not as much currently. Everyone’s situation is different though.

    1. It sounds like you guys are doing some prudent planning with your situation of having both incomes tied to the energy industry while that is a big factor dragging down the markets, meaning all of your income streams (both jobs and investments) could go south at the same time. Definitely different than irrational changing of plans based on emotions. Good luck!

  4. I like the analogy. I don’t really get all emotional with the stocks tanking… maybe that will change when I’m no longer putting money into the market, but for now, it’s a great deal! And as for ski passes… it’s always a risk. We’re not skiiers, but if we were, these last two years of snow in Alaska have been pitiful!

    1. I don’t get emotional either because of our understanding of our investments and contingency planning. However, I think we’re in the minority based on the conversations I have daily with my co-worker and clients.

  5. My first couple of winters spent in close proximity to some great skiiing/snowboarding I did not “invest” in a season pass. And having to face that price decision that ONL mentioned every time I thought about riding meant I did almost no snowboarding those first couple of winters. The past two winters I invested in the pass, and I am so glad I did. It makes winter a happy time indeed! It really is an investment in my well being if you ask me. As for investing in the market, I just think of a down turn like as the assets I’m buying going on sale. Who doesn’t love getting a discount? I just upped the amount I contribute to my retirement account at the beginning of January, and I am glad to see that the extra money will let me buy even more shares while they are ‘on sale’. I’m no where near a point of needing to pull that money out, and I am very confident that in the long run my investments will do just fine.

    1. Agree totally with the point of Mrs ONL. They are really smart people. If you haven’t already, you should check them out. Also agreed that getting into outdoor sports turned winter from a time of inactivity and depression into the time of year I most look forward to and you can’t put a price tag on that.

      As for your approach to investing, you are absolutely correct in the idea of getting things on sale early in your investing process. I think it can play with your emotions a bit more as you accumulate more money and see how substantial the losses can be. However, as long as you have a plan in place where you don’t need to sell in the near future, the math is still the same and so should be your decisions.

      1. I can definitely appreciate how taking a big hit on a larger nest egg could be a little more nerve racking. If we make smart plans, keep our eye on the prize, and keep our emotions in check we can endeavor to persevere! I will definitely check out ONL. If they follow you guys they must be smart folks!

  6. What the stock markets concerns: We are accumulating by investing each EUR we do not put in emergency funds or other specific goals. It that sense, a market dip means we buy more assets for less money. Agreed, it is no fun to see big losses in your account. The real question: what will these numbers look like in 20129, the year we plan to retire, or even much later?
    On the season passes: we do the same with the ZOO. We only need to go 3 times to make profit. The first year we went about 10 tiles, now we slow down a little, but I like the options it gives us: With the season pass, we even go if we doubt the weather will stay fine or not. It does not costs any additional money anyway. I think we will buy for next season as well.

    1. Agree with your comments on the investing 100%.
      As for the zoo, if you get value from going and would go anyway then I think the pass is a great deal for you and your family. As Mrs ONL pointed out above, if the pass pushes you to do things with family that you wouldn’t have otherwise it is even better. The only time where I think the passes could get tricky is if you trick yourself into feeling you get a good deal. For example, shoes are on sale. I don’t really need shoes but buy them anyway because it is a “good deal”.

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