Maximize or Satisfice
This is a key concept every investor must understand.
What do I really mean by Maximize or Satisfice?
Imagine an investment scenario. The first thing that comes in many minds is that I want the maximum return. There is nothing called as Maximum or Highest Return. Yet we all crave for it. This is where the scammers take advantage of us as they know that people want to maximize (Not just in investing, you can apply this to any part of your life or any decision that you take).
On the other hand, Satisfice in simple terms means that this thing satisfies the requirements needed to achieve a goal. For example, investing in a large cap fund satisfies my return requirement for my goal.
The problem happens when most people opt for maximization strategies when satisficing would work just fine. Continuing the above example, trying to invest in a single stock or in the current case, investing in just 2-3 stocks for maximizing returns (but this comes with a higher risk too) when investing in a large cap fund would have helped you achieve your goal.
The key to investing success is Satisficing (Satisfactory Returns at Reasonable Risk).
Barry Schwartz in his book “The Paradox of choice: Why More is Less” wrote aptly “To satisfice is to settle for something that is good enough and not worry about the possibility that there might be something better“.