Key Takeaway: The two types of investors—maximizers and satisficers—both have strong points and not-so-strong ones. But in my experience, satisficers tend to sleep better at night.
When it comes to markets, it’s easy to get caught up in the hype of the latest hot investment. Your current portfolio might be rolling along just fine, but you could still see it as lackluster when Bitcoin is selling for $10,000 and climbing.
A while back, I read The Paradox of Choice: Why More Is Less by Barry Schwartz, and the insights stuck. In his book, Schwartz introduces the terms maximizer and satisficer to explain the two ways people approach an abundance of options, whether it’s in the grocery aisle or on Wall Street.
Maximizers would be the investors who are continually worried that something better is just around the corner and that they might miss it. They’re the ones who buy Bitcoin but then keep on looking for an investment that is even hotter. With the seemingly endless investment options before them, they’re on the hunt for the one that will lead to greater satisfaction than the last one.
Satisficers, on the other hand, live by the philosophy of “good enough.” This doesn’t mean that they have low standards; in fact, they have very high standards. But once they make a choice, they are content to stop looking. A great example is the investor who selects a mutual fund based on its track record and good management and then forgoes the second-guessing a maximizer might do about their selection every time the market drops.
You might see yourself as both a maximizer and a satisficer—everyone has a mix of both traits. For example, I know friends who are maximizers about their iPhones, but when it comes to investing, they adopt the satisficer philosophy.
The key is to understand your inclinations when making choices. You can then become a better consumer, from high-tech gadgets to investments, because you gave the choice the time and research it deserves.
This brings me to my final point: We all have a choice about how we use our time and resources to get the best outcomes. And when the market gets rocky, it has been my experience that satisficers fret less and sleep more than their maximizing counterparts.
The opinion of the author is subject to change without notice and must be considered in conjunction with relevant regulation, as well as subsequent changes in the marketplace. Any information from outside resources has been deemed to be reliable but has not necessarily been verified. Each individual has unique circumstances to which this information may or may not be relevant. Under no circumstances will this information constitute an offer to buy or sell and it does not indicate strategy suitability for any particular investor.