The One Commandment for Investing

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If you had just one unbreakable investment rule—What would it be?

For me, that rule would be Never Sell, and think it’s a damn good one. Let me tell you why.

Why We Need Rules

I was a terrible student growing up. I would pick assignments I wanted to do, and simply take zeros on the ones I didn't find worth my time. The very nature of organized education and its contrivances made my skin crawl. This confounded my parents and teachers considering that, from the outset, my academic career should have been bright.

Early on I was tested as gifted, but instead of channeling those extra IQ points towards my education, I took them as affirmation that I was simply beyond school. I was, what clinical psychologists call, "a little shit".

I passed high school by such a small margin, that my name was not in the graduation program. Until I was called to walk across the stage, I wasn't really sure I was going to graduate.

In the months after high school ended, I began to realize something was off. It could have been that my friends had all moved away, and I was still living with my mom, but for the first time I began to reflect on why I torpedoed school.

My entire life I was told that I was a bright kid, and that all I had to do was apply myself, but was that really true? Could I have really passed Calculus if I tried? Physics? World History? I resolved that college was where I would find out.

School was stupid, that much I knew. For many students, school works in a highly predictable way. Effort in, achievement out. But what I had yet to learn was that it was also a game. It had pieces, players, moves, and most importantly rules. So I left home to learn how to play.

I studied the behaviors of my friends who were acing classes far harder than mine. I observed my partner’s study habits. Over time, regular patterns emerged. I learned the rules of how universities operated, and what I needed to do to succeed.

At 18, I graduated from high school with a 1.9 GPA missing two foreign language credits (despite having taken Spanish three times). At 24, I graduated from the #1 ranked university in the state with a 3.8 GPA Cum Laude.

The purpose of this story is to illustrate that when we decide to really engage in a game, regardless of how stupid or trivial we think it may be, we can win. You can beat any game, as long as you simply know the objective and the rules1.

Understanding the game you're playing

Most of life’s activities are structured as games. Successful players therefore, are simply optimizing their efforts to win. In order to do so, they first need to know with certainty the objective of the game.

School, as much as we’d like it to be, is not about learning. It is about obedience. The winners of school follow instructions incredibly well, have a tuned attention to detail, and memorize exactly what they’re told. If we take the bait, that school is actually about learning, we will optimize for entirely counterproductive behaviors.

Therefore, to win any game we are required to see things for how they are, rather than how we’d like them to be.

The game of investing is no different. While on the surface it may appear to be about growing your wealth, in truth, it is not. Investing is about one thing only, never being forced to sell. That's it. Period.

It's not about making huge sums of money, it's not about financial independence, it's not about having 20 years of savings stored before you can retire. It's about never being forced to sell. Everything else, and I mean everything, is a false idol.

One Good Rule

We can learn the importance of rules and how they can set our orientation for life by studying the ultimate rulebook, The Ten Commandments.

The Ten Commandments is a central document to the Jewdeo-Christian belief system that is composed of, well, ten rules. Like any good rulebook, there is priority in their ordering. The first is by far the most important. It could even be argued that you only need that one commandment to understand the whole shebang, "Thou shalt have no other gods before me".

This singular commandment, that there is only one true god and they are the highest god, is a catch-all baked right into the tablet. It means that anything the Jewdeo-Christian god says is law. All the following commandments are simply redundant. If a practitioner followed only that one rule, a whole litany of other rules spin out from that.

For example, god very clearly punishes murderers and thieves, and looks favorably upon the charitable and destitute. By following only this god’s preferences, you are given all the other rules you need to live. That’s the power of one really good rule. It orients your entire way of looking at the world.

What Makes a Good Rule

When I was 13 years old I weighed 200 lbs. Granted, I was a bit taller for my age, but to say I was chubby would be a bit too kind. I was fat. I didn't know exactly how to lose weight, but my suspicion was it had to do with my adoration of sweets. So I made my first rule. At 13 years old, I decided "No ice cream" was the solution. This was a great rule and it checked two important boxes; it was unambiguous and binary.

Unambiguous means that there is no room for misinterpretation. We all know what "No ice cream" means. It means no I can't try a bite of yours. It means no ice cream cake for my birthday. It means no milkshakes. Most importantly is the unambiguous spirit of the rule. I'm trying to lose weight by decreasing the amount of sugary sweets I have. Therefore sherbet, although not technically cream, is in violation of the spirit of the rule.

Binary means it’s a pass or fail. A binary rule takes the least amount of will power to execute, simply because the ability to choose has been removed. The mental calculus has been done. If I was at a friend’s birthday party, and asked "Do you want ice cream?", it’s a quick “No, I don't eat ice cream”. Not that I'm trying to cut back on how much ice cream I eat, but rather I don't eat it at all. Just like if someone offered me a cigarette. It’s not hard to turn down because I don't smoke at all.

The final factor of a good rule is that it spins out positive behaviors that also help you advance towards your ultimate purpose. That's to say, your rule acts as a foundation for the life you're ultimately pursuing. This last point is where some real, and unexpected, magic can happen.

For example, in college I created a rule that I would "Read one new book every week". This was my attempt to fast track my education after all those lost years being “a little shit". Some of the behaviors born out of this decision were: for the first time in my life I had a schedule, I tracked my habits, video games disappeared, I made time for education daily, and I began admiring authors. Now all of these secondary behaviors, when isolated, also worked towards accelerating my education.

One rule organically created a tree of positive behaviors, all of which supported my ultimate goal.

Why Never Sell

Now that we know why rules are important, the components of good rules, and that we really only need one, let’s get back to our central premise.

Our one financial commandment.

One rule to…rule them all.

Well first, there are a few underlying assumptions about investing we must accept:

• 95% of active fund managers underperform the S&P over 20 years.

• People often fool themselves into thinking they are good at trading.

• Trading is mentally exhausting, highly time consuming, and addictive.

• The S&P has never had negative returns for any 20 year holding period.

• The best way to mitigate inflation is regularly buying the S&P 500.

All of which bring me to our short and sweet little rule: Never Sell.

It’s unambiguous. It doesn't mean you can sell a little bit when you want to go on vacation to Cabo. It doesn't mean you can sell when the stock market soars 20% in a single year. It doesn't mean you can sell when you've seen your investment get chopped in half and you're worried that it will keep crashing.

Never Sell means you're already prepared for all of that, and you don't need to sell. It means that you already have the cash for that vacation. It means that you already know 20% growth is astronomical for one year, but will be surpassed in due time. It means that you have enough cash set aside as insurance for when, not if, your investments are cut down to size.

When you dig into the guts of what it means to truly Never Sell, you find one word— preparation. Preparation means staying inefficiently in cash. It means leaving some possible gains on the table, for the opportunity to:

1. Never have to worry about money, the stock market, or the health of your investments.

2. Never have to make an irrational decision out of fear or greed.

Never Sell means you're thinking about the family you don't yet have. It means you've considered possible futures. One where you lose your job, another where you travel the world for a year, another where you quit your high paying job to become a chef, and on and on.

Never Sell also means never investing hastily, because once the money is in, it's in. This insures that you will be properly leveraged, and possibly a bit under-leveraged, at all times. This under-leveraging is in general seen as stupid, especially during times of high inflation. But what's even more stupid is losing your job and having to sell your investments at a 20% loss because you don't have the proper buffer.

Lastly, Never Sell means the investments you choose must be high conviction. Although you may think Apple, Google, and Amazon are outstanding companies—Will they be around in 35 years?

Amazon has only existed for 28 years, Google 24. Apple has been around for 46 years, and almost went bankrupt 25 ago. My thoughts? Abdicate the decision entirely.

I don't know if any of them will maintain their alpha predator status into the future, let alone exist in 3 decades. What I do have much greater conviction around is the existence of the US Stock market in 35 years, and that the value it creates then will be greater than the value it creates today. Therefore, I would rather invest in the entire stock market, including Apple, Amazon and Google, rather than just a small subset. Especially if I can Never Sell.

Conclusion

Now you may be wondering— In the 17 years since, have I had ice cream? The answer to that is yes. I lasted 14 years, and broke it in spectacular fashion at Osteria Francescana with Parmesan flavored ice cream.

Rules have expiration dates. I had achieved my health goals years prior, losing over 60 lbs. Many other underlying behaviors contributing to my health and weight had changed as well. Hence, the rule’s expiration. I played the game, I won, and now I can be free of it.

The same applied for school.

The same will apply for investing.

Never Sell does expire, but only when we’re done playing the game of money. When we’re free of it.