After several discussions with my partner about investments, I decided to give this blog post a go. Much like other investment advice out there, this one’s going to give you an extremely broad idea on how you should approach investments in stocks, shares, bonds, REITS, and the like.
I spent a considerable amount of time in 2018 doubling down on investment knowledge and education as part of my investment planning and financial planning studies. Having exposure to the business and technology world, my take on investment tips is (thankfully) not as narrowed as the typical analyst advice would be.
So, as usual, I assumed control and decided to take it by the reins, and put some skin in the game, purchasing several REITS, blue chip stocks, bonds, and index funds.
If I could summarise my advice for investment into one sentence, it would be this: “The stock market is not your friend.“
The stock market’s biggest allies, who are also not your friends, are excitable news, investment sentiments, and obsession of your portfolio.
The stock market is not your friend.
Instead, it’s this looming, stinking goblin residing behind the veneer of the financial freedom dream. It awakens the most dangerous emotions in any human: excitement, and fear.
We are either too fearful to invest into the market, or having taken the plunge, we become excited and brim with ambition, thinking we’re invincible when the stocks are in the green the next day, resulting in a sudden and undesirable increase in our risk tolerance.
Being a successful investor requires emotional balance, diligence, and discipline.
Emotional Balance
Managing your emotions is key to becoming successful in investing.
A word of advice: don’t constantly check your portfolio. It could be in the greens today and switch back into the reds after certain prominent figures decide to hash it out on Twitter.
Stock prices change every single day, but it doesn’t mean the long-term value of the company has changed. Prices move for many, MANY reasons. Usually, it reacts to market’s sentiments before it really levels out.
Diligence
As an investor, you hold a certain interest in these companies and funds in which you invest in. As such, you are responsible for keeping up to date with the company’s plans and movements, their deals and acquisitions, and most importantly, the company balance sheets.
Diligence requires effort and time, which technically strips away the meaning of “passive” in the term “passive investing”, as it still requires a fair bit of effort and a lot of analysing (of the firm, not so much market sentiment and definitely not what the media portrays the situation to be).
Which brings me to the last point:
Discipline
Ignore your friends (who’ve little to no background in financial education) and the media messengers / outlets: Media in particular encourage you to think about the stock market as a game. Influential figures who have no professional experience in financial planning or investment portfolio planning, or anything finance (aka. self-proclaimed, self-made millionaires raking profits by selling books and courses…)
If you play along, you’re at risk of nullifying all the research you’ve done as your time horizon dwindles from years to minutes.
Remember, media also holds the danger of stripping from you the humility that is so needed in investing. Influential figures, social media, and media outlets are incentivised one way or another to project an image of infallibility (the opposite of humility).
You are never going to hear from them the words that are the essence of investing: “I don’t know.” And, honestly, this is dangerous. It’s a red flag. If you stop thinking, if you start assuming you know everything, you may believe you can be an expert on everything. And no one can. Especially not influential figures whose main source of revenue comes from selling you courses or workshops on “how I made my first million” (I hope you know the people I’m referring to.)
If you start to believe that the future has only one path, you may ignore other paths and thus other risks in your portfolio construction. You may start to feel as though you know better than financial planners do about personal finance and investment portfolio planning (which, honestly, like, no.)
When you tell yourself you’re an expert in stocks after having gone for a workshop, then your circle of competence has zero boundaries, resulting in you taking this overconfidence and baseless audacity to places and into investments where you have no place being, where you’d be spit out faster than the cat food accidentally ingested by Charlotte my rabbit.
Are you an Investor or a Trader?
Cut the B.S labelling on “short term investors” and “long term investors”. If you invest, your time horizon is and should always be long-term.
Remember: investing is not just about time horizon (the ability to hold); your analytical process over time is equally important.
Being an investor means viewing all news about a company, all its information on upcoming mergers and acquisitions, reviewing and keeping tabs on its balance sheets, questioning media intentions, and analysing how every move would impact the value of the business.
This perspective is rather liberating, I feel. Before I started working my way up as a Certified Financial Planner, I’ve always thought investing in the stock market was an exciting yet confusing money-making journey to financial freedom, that only expert analysts could wrap their heads around.
After graduating from the program, I realised what an idiot I was, and what idiots these analysts could be, too.
When you start to process the news flow differently, you begin to filter out the noise of the everyday news dump, baseless advice and sentiments from friends, family, analysts, and yes, even traders.
A simple question,
“How does this impact the value of the business?,”
filters out 90% of the market’s noise and puts you on a solid investment ground to start your investment journey — no matter how volatile the market itself may be.
