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I find that my opinions on money are very different depending on the context. For example - I've got about $60,000 in my stock portfolio, so that fluctuates considerably (anywhere between several hundred and a couple thousand dollars a day). When I see that, I usually just shrug and forget about it. But if I'm out grabbing lunch and one sandwich costs $2 more than another, that really affects my decision.

I get that the investment thing is kind of different because I'm aware there will be ups and downs, and there's the potential (and expectation) that eventually I'll come out ahead (whereas with the more expensive sandwich, there's no way to "make that money back"). But how about this? Say I'm going on a date - depending on the place, I've got a rough idea of how much it's going to cost. Say $100 for the two of us. But if we get an extra glass of wine, or a different main course, or whatever, it could be $120 or even $150. This to me is kind of irrelevant. I wouldn't want to buy the most expensive bottle of wine and end up spending $500, but $100, $120, $130? - it's all the same. Now consider that I had to take a long subway ride to get there, and wanted to bring the magazine I was reading, but I didn't want to hold that or put it on the table during the meal. It cost about $5, and I could have just thrown it away and bought another copy later. That $5 should be inconsequential, right? Especially when I really don't care either way if I spend $100 or $140 on the date.

I guess my point is that I feel like I waste both time and energy worrying about things that have relatively little monetary value. There's that picture frame I got years ago that I'll never use, and I swear one day I'll sell it on eBay and get $3 for it. How can I possibly care about this when my stock portfolio is losing (or gaining) $1000 a day?

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    How is the question in the title different from: “I’m curious if other people feel like I do?” I think the real problem you are trying to solve is embodied in the statement: I guess my point is that I feel like I waste both time and energy worrying about things that have relatively little monetary value. – George Marian Jun 20 '12 at 7:04
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    This question is actually useful to be answered on a personal finances Q&A site, because it deals with the psychology of spending and money value, which is well researched and quite interesting. I'm trying to find the right psychology references for this but striking out at the moment other than perhaps the concept of anchoring. I hope to try again later. – Chelonian Jun 27 '12 at 6:52
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The psychology around money is the subject of a lifetime of study. Your observations are not uncommon. The market daily fluctuation is out of our control. Hopefully, by the time the 1% volatility impacts you by say $1,000, you'll have grown accustomed to it, so when the 1% is then $10,000, you won't lose sleep. The difference between the $1000 up/down and the $3 sandwich is simple - one is in your control, the other isn't.

When you're out, you need to try to cut down on the math, it will only bring you unhappiness. You're paying for the socializing and can't let the individual items on the check bother you. I'm at the point in my life when I prefer a more expensive restaurant meal that I can't make at home to a moderate one that I'd make myself. For me, that logic works, and it's not keeping us home. Funny how my own sense of value for the dollar pushes me to a more expensive experience, but one that I'll enjoy.

By the way - eBay has done an amazing thing, it's created a market for you to sell your stuff, but it's also pulled everyone's collection of junk out for sale. Books I thought might be worth selling go for $1-$2 plus shipping. It's not worth my time or effort, and I need to just break the emotional ties to 'stuff.' I box them up and bring them to the library for their sale. If that picture frame isn't antique, throw it out or have a yard sale.

This may be right on track to your question or a complete tangent....

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All value given to products is subjective and is different from person to person. It can also vary for the same person from year to year, month to month, day to day, or even hour to hour as a person analyzes different products and prices to determine which imparts the most value to him or her at a given point in time.

In regards to losing money in your investment accounts. This reminds of a book I read on Jesse Livermore. Jesse was a famous stock broker who made millions (in the 1920's so he would be a billionaire in today's money) in the stock market multiple times. Jesse felt like you - he felt like after a while the losses on paper did not seem to concern him as much as he thought it should. He thought it was due to the investment accounts being simply being numbers on papers and not cold, hard cash.

So what did Jesse do to remove the abstract nature of investment accounts?

From here:

Livermore always sold out all his positions at the end of every year and had the cash deposited in his account at the Chase Manhattan Bank. Then he would arrange with the bank to have the money, in cash, in the bank’s vault in chests. “There was a desk, a chair, a cot and an easy chair in the middle of the cash.” On the occasion described in 1923, there was $50 million in cash. In the corner was a fridge with food, enough for a few days. There was lighting installed. Then, like Scrooge McDuck, Livermore would have himself locked in the vault with his cash. He would stay a couple of days and “review his year from every aspect.”

After his stay was over, he would fill his pockets with cash and go on a shopping spree. He would also take a vacation and not re-enter the market until February.

But unlike Scrooge McDuck, this was not the act of a miser, explains Smitten. Livermore lived a world of paper transactions all year long. He believed that “by the end of the year he had lost his perception of what the paper slips really represented, cash money and ultimately power.” He “needed to touch the money and feel the power of cash.” It made him re-appraise his stock and commodity positions.

Imagine the $60,000 from your investment account sitting on your kitchen table. Imagine seeing $1,000 dumped into the trash can one day. I know I would appreciate the money much more seeing that happen.

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Well, this relates to how you interpret something's value.

We can use that magazine and restaurant as an example. For you the extra $10-$30 more on a decent meal or wine is worth it while $5 for a magazine entertainment on a train ride might not be. This is how all markets work, people make decisions about how they value something and hence choose to spend or not. If you're asking "should I value certain things the way I do?" well that's a different story

e.g. should I keep that picture frame for years in the attic to sell it for $3 on eBay later. (probably not worth it) But again you are making that decision based on how YOU choose to value it.

So to answer your question:

How can I possibly care about this when my stock portfolio is losing (or gaining) $1000 a day? and is it normal?

Yes it is normal and we all care. Everyone makes these decisions throughout each day, people will vary as to what they value something to be, but all in all everyone does just what you explained.

Here is something that you may find interesting it is about how we value money:

What color is your money?

if the pdf doesn't work for you then try this link:

What color is your money alt link

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  • Also, as humans, we value the loss of $20 (or any amount of money) more than finding $20 (or the same amount of money). That is why it is hard to throw out a magazine you just bought (even if only for $5). – Victor Jun 20 '12 at 0:50
  • @Victor - I've read that a $1 loss feels as bad as a $2 gain feels good. In other words losses have twice the emotional impact. Since over the long run, the market may rise only 10% per year, watching the daily fluctuations will, on average, have us feeling pretty bad. – JTP - Apologise to Monica Jul 3 '12 at 5:22
  • Does anyone even get anything besides red color as the result? – Pacerier Oct 18 '13 at 9:25
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Here's how I think about money. There are only 3 categories / contexts (buckets) that my earned money falls into.

  1. Savings
  2. Investments
  3. Consumption

Savings is my emergency fund. I keep 6 months of total expenses (expenses are anything in the consumption bucket). You can be as detailed as you want with this area but I tend to leave a fudge factor. In other words, if I estimate that I spend approximately $3,000 a month in consumption dollars then I'll save $3,500 times 6 in the bank. This money needs to be liquid. Some people use a HELOC, other people use their ROTH contributions. In any case, you need to put this money some place you can get access to it in case you go from accumulation (income exceed expenses) to decumulation mode (expenses exceed income). This money is distinct from consumption which I will cover in paragraph three.

Investments are stocks, bonds, income producing real estate, small businesses, etc. These dollars require a strategy. The strategy can include some form of asset allocation but more importantly a timeline. These are the dollars that are working for you. Each dollar placed here will multiply over time. Once you put a dollar here it shouldn't be taken out unless there is some sort of catastrophe that your savings can't handle or your timeline has been achieved. Notice that rental real estate is included so liquidating stocks to purchase rental real estate is NOT considered removing investment dollars. Just reallocating based on your asset allocation. This bucket includes 401k's, IRAs, all tax-sheltered accounts, non-sheltered brokerage accounts, and rental real estate. In general your primary residence is not included in this bucket. Some people include the equity of their primary residence in the investment column but it can complicate the equation and I prefer to leave it out.

The consumption bucket is the most important bucket and the one you spend the most time with. It requires a budget. This includes your $5 magazine and your $200 bottle of wine. Anything in this bucket is gone. You can recover a portion of it by selling it on ebay for $3 (these are earned dollars) but the original $5 is still considered spent. The reason your thought process in this area is distinct from the other two, the decisions made in this area will have the biggest impact on your personal finances. Warren Buffett was famous for skimping on haircuts because they are worth thousands of dollars down the road if they are invested instead. Remember this is a zero-sum game so every $1 not consumed is placed in one of the other buckets. Once your savings bucket is full every dollar not consumed is sent to investments. Remember to include everything that does not fit in the other two buckets. Most people forget their car insurance, life insurance, tax bill at the end of the year, accountant bill, etc.

In conclusion, there are three buckets. Savings, which serve as your emergency bucket. This money should not be touched unless you switch from accumulation to decumulation. Investments, which are your dollars that are working for you over time. They require a strategy and a timeline. Consumption, which are your monthly expenses. These dollars keep you alive and contribute to your enjoyment.

This is a short explanation of my use of money. It can get as complicated and detailed as you want it to be but as long as you tag your dollars correctly you'll be okay IMHO. HTH.

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  • Why do you need 6 * $3500 as backup cash? That's a bit too much right? – Pacerier Oct 18 '13 at 10:02

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