The One Thing Smart Investors Don’t Need

As human beings, we are constantly seeking the validation of our peers. This started as early as our school days where the need for validation and acceptance influenced everything from what we wore to how we styled our hair to the music we listened to and the people we hung out with.

We never outgrew the need for validation, and the popularity of social media capitalized on this basic human behavior. Now we have a global audience from which to garner validation. It’s no wonder Facebook, Twitter, Instagram, and the like all made their founders billionaires. Everyone wants to be accepted, and nobody wants to be ignored or left behind.

This deep-rooted longing for validation can reach unhealthy levels when a person’s self-worth depends entirely on their status and popularity on social media.

There’s growing evidence linking depression with social media. When self-identity is linked to “likes” and positive reinforcement, not garnering enough “likes” or positive comments from posts can negatively affect people, even causing depression.

The need for validation is universal, and it seeps into every facet of our lives, including investing. This need for validation and acceptance is at the root of mainstream investing. People invest in 401(k)s because all their co-workers are doing it. Many rely on financial advisors because their parents did it, and that’s what their neighbors do. They rely on social media and the internet for investment advice because it’s what everyone else is doing.

In 2020, the need for validation combined with investing collided to spawn trends and consequences no one could have foreseen. Armed with stimulus money and free time from widespread lockdowns and rampant unemployment and underemployment, millions of investors took to investing for the first time.

The growth of new investors was also due in no small part to the free and easy-to-use trading platform Robinhood. Unable to interact in person, people took to social media and online discussion forums such as Reddit to discuss their newfound interest in investing.

Instead of assembling in public places, people were now gathering on Twitter and Reddit for investment advice. People were now investing based on Elon Musk’s latest tweet on crypto and trends on popular subreddit r/wallstreetbets.

The result was a feeding frenzy by new and even experienced investors snapping up crypto and stocks at record levels. Bitcoin and the Dow reached record heights as investors threw caution to the wind. Nothing was off-limits – not even stocks of worthless or floundering companies.

The investing phenomena in 2020 reflected the innate human need for validation and actions driven by FOMO in overdrive. It was the hype of the dot-com era and the insatiable appetite for mortgage-backed securities of the real estate bubble all over again – but on steroids. We all know how those two bubbles played out.

Investment validation is what most people seek out, and it explains herd behavior, but it’s the one thing the smart investor doesn’t need. Smart investors know better.

Ultra-wealthy investors are ultra-wealthy because they don’t need validation. They have never needed it. They have a healthy sense of their financial self and financial decision-making. They don’t care what’s popular and don’t need validation or acceptance. They’re less concerned about making their peers happy and more concerned about making money.

Just like individuals with high self-esteem, savvy investors look inward for validation, not outward. They look at the underlying attributes and fundamentals of an investment opportunity to judge its viability. They look at the numbers and the data. They study the trends the economic indicators, and they make forecasts based on all that information. And they forecast out for years, not days like the popular crowd.

What exactly are smart investors looking for?

They’re not looking for short-lived popularity and acceptance. They’re looking for long-term wealth building and maintenance. They’re looking for cash-flowing investments backed by assets you can touch and feel because these tangible assets also appreciate over time. It’s these tangible assets that also typically confer significant tax breaks that stocks don’t offer.

The triple combination of income, appreciation, and tax breaks is the ideal formula for creating, building, and maintaining wealth over the long term.

The investing public may not find these assets sexy or even have the patience to see them play out, but smart investors are willing to play the long game because they know the rewards they’ll be able to reap.

The ultra-wealthy are where they are because they’ve always zigged when everyone else has zagged. It’s how they have survived and even thrived in the face of the dot-com and real estate bubbles and even as recently as last year with the pandemic-induced recession.

When investing, going with what’s popular because of the need for validation often ends in disaster.

To reach your true investing potential, see what the smart investors who don’t need this validation are doing.

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