Wednesday, September 14, 2016

MAMA and Investing

No, I'm not referring to your mother. I'm referring to the words underlying the acronym MAMA - Moratorium Achievement Moratorium Achievement.

Let me take a step back. How do individuals develop their sense of identity in life? When do they develop their own sense of personal identity? Is identity fixed or is it a fluid concept?

While there are many psychological theories that aim to explain identity development in humans, today I will only be discussing the work by psychologist James Marcia. His thesis is that identity is a result of the dialectical interplay between exploration and commitment. In life, we explore the various options the world offers us. Once we have made a decision, we commit to it. In so doing, our decision gets intertwined with our identity.

However, this is not the end of the story. Often, we have other personal aspirations, interests, side projects or even a complete change of heart. We recommit ourselves to these new endeavours/incorporate these new endeavours within our core identity, formulating a much more nuanced concept of identity.

According to Marcia, each one of us could be categorized into one of four Identity Status categories: Identity Foreclosure, Identity Diffusion, Identity Moratorium, and Identity Achievement.

Identity Foreclosure occurs when an individual made a commitment without exploring any alternatives. Example: "I must go into Banking/Law/Medicine because my parents said that only those careers will lead to a high pay and a bright future. Therefore, I follow lor!"

Identity Diffusion is characterized by neither exploring nor committing to a particular facet of life. Example: "What do I want in life? Don't know. Never thought about it before leh."

Identity Moratorium occurs when an individual experiences crisis in his or her life. Values, beliefs, and choices are called into question and the individual is forced to re-examine his or her value/belief system and past choices. Example: "Alamak. I chose this Major but I realized that I have made a wrong decision. What do I do now?"

Identity Achievement happens once an individual experiences and overcomes a crisis by evaluating beliefs, values, and choices and committing to a plan of action. Example: "I know what I want. I have done my research. I have consulted experienced people who have walked this path. I know the strengths and the weaknesses of my choice and I'll go all in!"

However, Identity Achievement is not a permanent state. Neither is the world nor our desires static. There will come a time when we either experience a crisis or a dissatisfaction with the way our current life is. That is when we re-enter the Moratorium stage, putting our values, beliefs, and life choices into the spotlight again (That's where you see all the midlife crisis/career change/and what not). Hence, the MAMA cycle.

Me being me, I appropriated his theory to investing. I believe I'm somewhere in Identity Moratorium with regards to the investing facet of my life. I know the importance of savings and investing. I personally took the decision to invest, without any external influence from anyone. I started by DCA-ing into the STI ETF through the POSB Invest Saver plan.

However, I realized that the above method did not suit my needs. I preferred cash flow through dividends/distributions over capital gains. Given a choice, I would rather prefer a higher proportion of total returns to be from dividends than from capital gains. Though I have some high-yielding REITs in my portfolio, they are but a small position. Low leverage, positive free cash flow, and cheap valuations are the way to go for me. :)

Yes, I am aware that "optimally" I should be pursuing value investing over income investing given my age. In some circles, it is said that capital gains (dividends included) from a value investing approach possess a higher probability of outperforming income investing. I'm still fine with that.

Do I have a lot more to learn about investing as well as my own investment temperament? I sure do. In fact, sometimes I get frustrated with my own progress in investment knowledge. I fail to understand the ramifications of various company announcements. If I progress on, I'll learn.

Are there flaws in my investment strategy at the moment? Yes. Do I know how to rectify or mitigate their impact? Somewhat.

What about you readers? Which stage are you in? One thing's for sure, none of you are in the Identity Diffusion stage. Why else would you bother reading my post?

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