The Psychology of Savers

We're only savers if there's no credit involved in our investments. The moment we include credit into our schemes, we are either investors or speculators. The distinction between investors and speculators is that investors look at revenues and costs, while speculators buys things merely out of a belief that they will go up in price.

By this definition, hardly anyone these days is a saver. They are either investors or speculators.

Some may argue that they are part investors and part savers. Their bank loan is connected to their house. Shares and other valuables are bought free of credit. However, this obscures the fact that people who do this choose to buy shares and the like instead of paying down loans. They are speculating with part of their bank loan.

Once there's credit involved, savers become either speculators or investors. Speculators pile into whatever looks like it's on its way up, while investors focus more on revenue streams and profitability.

When we buy a house with bank credit, we tend to do so based on the fact that it's cheaper than renting a place. That's the the mentality of an investor. To buy a place merely because it's on its way up is the mentality of a speculator.

Interestingly, both mentalities are present in savers. As savers, we look to get in on things at the cheap, and we love a good dividend. However, we're not using bank credit. We're using real savings. The big difference between the investor/speculator and the saver lies in the presence of credit.

The reason most people end up either investing or speculating is that reliable saving strategies are boring.

This is clear from my book: It's possible to obtain great returns on savings by moving between real-estate, stocks, productive land, and gold. However, this requires long perspectives. We ride cycles that can take decades to pan out, and we do nothing with our savings while this goes on.

One cycle can deliver a tenfold return, so we stand to make a fantastic profit with this strategy, but we won't always hit the tops and bottoms perfectly. We can't expect to make a tenfold profit every decade. We might be treading water for decades.

But life is long. We're likely to catch at least one good wave. That will tenfold our savings. If we manage two such waves, we end up hundred times richer than we started. With a bit of luck we end up a lot richer at the end of our lives than we were when we started, and all we ever did was two big trades.

And that's where the problem lies. Two big trades in a lifetime means that we do nothing with our savings for decades on end, only to make massive moves at the end of mega-cycles.

This requires a special type of personality. Not only must we be patient, but when we move, trades are enormous, which is nerve-wrecking even if it's done in parts over several years.

This is so contrary to how most people are put together that the majority go for other strategies. Leverage is brought in to speed things up. Bets are smaller, but with bigger return/losses, and they run over shorter time spans.

The problem with this is that it comes with a cost. The bank loan isn't free. Speculators are also prone to make more bets than necessary and place their bets at inopportune moments. Not only do they lose to the banks. They lose to professional speculators as well.

Patient savers will almost always win in the end, and the reason for this can be found in nature, aka God. Nature moves at a gradual pace. A small tree becomes a massive structure over time. But it takes decades for this to happen.

Real savings are like this. They too start small, but grow over decades with little to no care from our side. All we need to know is when to harvest, and where to find the next thing to invest in.

The message is clear: If we keep an eye out for opportunities, and plant our seeds carefully and with an understanding of when to harvest, we can spend our lives doing completely other things than looking at charts and making wagered bets on short term price movements.

Enjoying a cup of coffee