Comments on: The Five Minute Rule

By: scdavid

scdavid — Sat, 24 Jul 2010 21:48:36 +0000

couldn’t agree more with this. You really should be able to use this for more than just investing. Loans, etc come to mind.

By: Shirley

Shirley — Thu, 22 Jul 2010 14:04:37 +0000

Long ago I realized that if I didn’t understand something (or the consequences of doing it), I would best off not to do it.

If it is something really enticing, I will try to learn its workings, but I still want to know the basics of the consequences first.

By: poscogrubb

poscogrubb — Wed, 21 Jul 2010 19:29:47 +0000

I agree that you shouldn’t sign on to something you don’t understand. In the world of financial tools, that includes a basic understanding of the factors that make your position go up or down.

If you don’t understand it in 5 minutes, don’t sign on the dotted line.

HOWEVER, that does NOT mean you should give up and not take more than 5 minutes to learn about it. This happened to me recently: a broker proposed buying into a callable very long term corporate bond with a high interest rate for the first year. Interest in the remaining years was based on the difference between long-term and short-term interest rates of Treasuries–something like that, I think. Despite the nice sounds the broker was making, I had to say no because of my lack of understanding of how interest rates behave. However, I would like to spend up to an hour reading and learning about it. (You have any resources on this topic? Please let me know.)

By: zapeta

zapeta — Wed, 21 Jul 2010 19:06:51 +0000

As Jim mentions, you’re ultimately responsible for what you sign, so take the time to understand what you are agreeing to. Some topics may require more than 5 minutes to understand but if you still feel uncomfortable with something, get clarification or don’t sign the agreement.

By: Mark Wolfinger

Mark Wolfinger — Wed, 21 Jul 2010 16:23:05 +0000

The question is: How much effort do you put in when you are not sure of the benefits?

You are right, the option is easy to understand. Proper usage – that’s where time is required.

How do you suggest deciding whether it’s worthwhile when you do understand the product – but not the specific details of how to use that product.

For me, options are easily worth the effort. But they are not for everyone.

Regards

By: cubiclegeoff

cubiclegeoff — Wed, 21 Jul 2010 13:09:11 +0000

I agree that anyone can learn pretty much anything, they just need to make an effort. Sometimes having someone you trust explain everything is also helpful, as long as they truly know what they’re talking about.

By: billsnider

billsnider — Wed, 21 Jul 2010 12:48:22 +0000

I have passed on investments using this simple rule without knowing there was just such a thing. It is a natural instinct.

Thanks for pointing it out.

Bill Snider

By: Miranda

Miranda — Wed, 21 Jul 2010 12:44:04 +0000

What a great, simple rule! I like the idea that you should understand what you are doing. Whether it’s getting a car loan or trading currencies, you do need to understand what you are doing. After all, those who understand money are more likely to get it to work for them!

By: Emily

Emily — Wed, 21 Jul 2010 11:54:26 +0000

If you’ve ever heard Warren Buffet speak, I think you could say he agrees with this. He and Charlie Munger have said frequently that X financial deal was just too complicated for them. They don’t invest in industries they don’t understand either.

In other words, I guess you can do alright sticking to what you understand and not feel bad about avoiding over complicated stuff.