Posted by Tim Stobbs on October 7, 2010
For me sitting down after a long day with a cocktail in one hand and a book in another is pure happiness. There is something just nice about being able to come home and make what every drink you feel like (limited of course to your liquor cabinet). So while enjoying a drink the other day it occurred to me how similar drink making and investing are. Both are actually fairly simple to do with a little effort and some investment of resources, but both are both terrifying when you start out.
In both cases the primary reason to make your own drinks or invest is savings and quality of the outcome. In the case of cocktails you get to avoid the outrageous costs at bars and restaurants, while in the case of investments you get to avoid the huge Management Expense Ratios (MERs) that exist on most mutual funds and suck down your profit. The other reason to start down the path of doing it yourself is the fact even with no previous training you can often do a better job than the person behind the bar or the desk. It’s sort of depressing to realize it, but with a little effort you can beat most people in either drink construction or portfolio management (at least when it comes to the basics).
So if it fairly easy, why don’t more people do it? In a word: fear. People are sacred of screwing up and either ruining a good drink or losing some money. Well the fact is a little self-education is likely going to require you do mess up and waste some money. It’s ok, tuition in the university of life often comes due when you least suspect it. The trick of course is to contain your losses to a reasonable amount.
So how do you contain your losses? Well in investing you have to do some reading on the various theories and schools of though on investing to determine are you a value investor, dividend investor, index investor or ETF guru (you get the idea). It might even take some experimentation to determine what style is right for you (typically determined by how much sleep you lose and worry you experience – typically the less sleep you lose the better it works for you). To contain the potential losses make sure to keep only a small part of your portfolio in your experiment fund. The rest of the money should likely stay in something well noted for out performing the majority of mutual funds such as the Couch Potato portfolio. That way you can play around with some more activity strategies without losing too much of your savings in the process. Consider a 90% index, 10% play amount to start with and increase the pay amount as you feel comfortable (I’m currently hanging out at 20% of self picked stocks).
For drinks you have to be sure not to add too much at once. A six-booze mixture for a starting out bartender is basically a screw up waiting to happen. Start off with a few basic drinks with one or two boozes and use what you have in the house for booze. Then slowly add no more than one new booze per month. Try a few different drinks with it to determine what you like or don’t like. Yes you will screw up with a few mixes or even a bottle of something awful (hint if it is too sweet add a slash of vodka, while too sour keep some simple syrup, equal part sugar/water and boil, to fix). It’s ok you will mess up, but then again you will find out some great drinks. For example, I’m typically not much a martini fan, but then I found the Vesper Martini and I’m hooked. There is something about the balance of vodka, gin with a lemon twist shaken until there are little pieces of ice in it that goes down so nice.
So how do you get started? Well active investing is going to require a trading account somewhere and some cash to go in it. Meanwhile cocktails will require some glassware (including a shot glass with 1/4 oz measuring lines) and a drink mixer to start. In both cases don’t try to do something without first doing a little reading. Research is critical to avoid a mishap, so get to your library and borrow a few books to start with. Then if you feel a little comfortable you might want to invest in a few reference books.
Besides if you do both at the same time you will find out a cocktail will typically improve the reading experience of just about any investment book. Just stop reading after your second cocktail since you should never trade stocks while drunk. Remember friends don’t let friends, drive or invest while drunk.