Why Opportunity Cost Could Be Killing Your Portfolio


Opportunity Cost Could Be Killing Your Portfolio… I know it sounds very serious. But it’s true. Here’s why!

When it comes to life and investing, I used to eagerly chase every opportunity that came my way, driven by FOMO (fear of missing out) and an unwillingness to let go.

However, the truth is, our daily time and resources are finite; we can’t say “YES” to everything. Choosing one path often means saying “NO” to others.

So, before making any decisions, whether in investing, relationships, business, career, or lifestyle, we should always ask ourselves: “Will this yield the highest ROI? Is it the best decision to help me achieve my goals? Are there better alternatives?”

Always consider opportunity cost to avoid the errors of omission, which can be more costly than those of commission.

opportunity cost

In the realm of investing, Gautam Baid, the author of “The Joys of Compounding”, reminds us that “mistakes of omission” occur when we spot a promising opportunity but hesitate to act, resulting in a significant opportunity cost. “Mistakes of commission are capped at 100 percent, but mistakes of omission have no such ceiling,” he said. 

Most people focus on explicit out-of-pocket costs, overlooking opportunity costs. Long-term investors who hesitate to invest in high-quality businesses often pay a steep opportunity cost.

Identifying high-quality businesses should lead to doubling down on them, necessitating a “NO” to inferior options.

By the way, I highly recommend you to go and read “The Joys Of Compounding“. It’s one of the best and most insightful investment books I have ever read.

the-joys-of-compounding opportunity cost

Learning to say “NO” is, in fact, saying “YES” to the best available decision, echoing Warren Buffett’s wisdom: “The difference between successful people and really successful people is that really successful people say no to almost everything.”

To wrap it up, let’s remember W. Somerset Maugham’s words: “It’s a funny thing about life; if you refuse to accept anything but the best, you very often get it.”

opportunity cost buffett

By the way, I’ve recently conducted an exclusive interview with Rui Ming, a multimillionaire investor who left his job four years ago to pursue a full-time career in investing. His portfolio consists of a substantial 70% allocation to Tesla. Maintaining such a concentrated portfolio implies his adept mastery of the principles of commission and omission. You can watch our interview here to gain valuable insights into his investment strategies!

I recently also published my thoughts on Why I think Sea Limited Is Doomed as well as what options trading strategies really work. Feel free to check out!

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