Enthusiastic Allocations
I enjoyed the responses I got to this whatever-it-is about earning better returns. If you didn’t read it, the gist was that when you’re allocating capital, there are a lot of ways to get paid back and that different people find different ways more rewarding than others. For example, Hassan wrote back to say that he thought this was a wise – but unexpected – point for a private equity professional to make. Then he shared with me his favorite advertisement, this Edward Jones spot about the fact that the key to being rich is knowing what counts. It’s saccharine, but sweet.
Josh, an investment advisor who also wrote back, told me that when working with clients, it’s not always about earning the best potential returns, but making sure they understand the story. I wrote back that that’s exactly right. While there is “optimal allocation,” there’s also “enthusiastic allocation.” And if you’re not enthusiastic about your allocations, you won’t be as likely to stick with them – and sticking with allocations is the only way to reap the potential rewards from them.
In other words, I’m all for sacrificing a few points of alpha to do something you’re excited to do. Because if you’re not enthusiastically allocated, you probably won’t generate alpha anyway.
Have a great weekend.
– Tim
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