If you’ve chosen to manage your own money you’ve taken on one of the most important tasks which will ever befall you in life. Apart from the love of our families, and perhaps our careers, the next most important thing is how we manage our money. That is, whether that little bit you’ve set aside grows, stagnates, or worse, whether it shrivels and dies. This will depend on the quality of the decisions you make now and into the future industrial average stocks.
Of course if we manage our money better, then perhaps we’ll be in a position to shorten our careers, or not have to rely solely on them to produce our income allowing us to spend more time with our families. I certainly know what I’d rather be doing…working 9-to-5 or playing with my kids…
Yet unfortunately most people do not put anywhere near as much time, effort or consideration into their investing as they do into their families and careers. Too many adopt a “She’ll be right mate” approach with their investing. It takes a very distant back seat to the rest of their life, yet in so many ways it’s just as important as forging a successful career. Get your investing right and there’ll be plenty more to leave to your loved ones when you finally check out!
In my seminars and workshops I’ll often push people on their investing approach and try to get to the heart of just how much time and effort they’re actually putting into their investing. The results are uncannily consistent: Not enough! Most investors simply have no comprehension on the work required to be successful in the markets. They truly believe that they have a sound and credible investing plan but in actual fact their methodology falls far short of one.
“What I do is find blue chip stocks with a good story and hold them for the long run. The market goes up in the long run, how hard can it be?” This has shown to be an extremely faulty plan (or not really one at all) over the last few years as markets have melted down.
Blue chip stocks have shown to be no more reliable or safer than their more speculative counterparts and indeed, many have simply vanished. There’s far more to successful investing than buying so called blue chip stocks and hoping for the best.
Unfortunately most investors can be described as ‘hobby’ investors. They’re part-timers. They don’t put the same time, effort, consideration and professionalism normally reserved for their careers as they do into their investing.
Professional career investors however will without fail possess a well thought out, researched, tested and documented approach. This is more commonly referred to as a “trading plan”. It makes sense that every successful individual or business achieved that success through excellent planning and execution of a well thought out plan – and certainly not by luck. Investing is, and should be no different. Luck has nothing to do with it.
Why is it then that so many investors come into this game with no plan whatsoever, or a plan of attack which can only be described as “flimsy”? They’re simply hoping to get lucky!
I see far more investors who are not achieving their full potential, are not even aware of what this is, than those who are – hands down. I’m not sure that there’s any way to sugar coat this – but most investors I meet are lazy and complacent. Unfortunately for them, they just don’t realise how lazy and complacent they actually are!
Most truly believe that they’re doing a bang-up job. Then I point out that the goal is not to just make money, but to beat the market. Sure it’s great to make a 10% return over the course of a year. But what if the market went up 20%? If this is the case then you’ve made money, but lost significant opportunity. You would have been better off by simply giving your money to an index fund manager, not having any stress, not putting in any effort, and just matching the market.
Most investors I talk to realise that what they thought was a good performance is actually costing them thousands and thousands in missed opportunity! A dollar not earned today because of laziness and complacency is going to cost you $6.72 in spendable capital in 20 years at a compound rate of 10% per annum. That might not sound like much, but extrapolate it out over every investing dollar you’ve flittered away over years and you’ll get some idea of just how important it is to get your investing right today.
If every successful individual and company achieved such success through meticulous planning and execution, why do so many investors put their hard earned money at risk in the market without the same application? Can you afford not to have a trading plan? Can you afford to be lazy and complacent and treat your investing like a hobby? Are you going to have a well defined, researched, tested and proven investing plan or are you going to leave it to chance?
The major part of being professional is executing a well documented, researched, tested and proven investing plan. Unfortunately however, not only do many not have such a plan, they overestimate the amount of effort they’re applying to their investing. Rather than treating their investing like a profession, it’s relegated to ‘hobby’ status.
I’m going to use an analogy to illustrate this concept. It’s one I’ve been using for quite a while at my workshops to prove the point of just how hard and how much time and effort is required to be truly successful in the markets. You’ll understand what I mean in a second, but funnily enough this analogy used to work well until quite recently. It’s now the source of great amusement to my students!
I’m a keen weekend warrior golfer. I say warrior because you can often find me conquering the shrubs and bushes at a local golf course near you on a Saturday morning. No shrub is too thick, and no forest too impenetrable in my quest to find my ball after a wayward tee shot.
Sure, I like golf, but I’d hardly call it my profession. It will only at best be a hobby for me. I’ve got precious little time to practice my game and therefore most of my practice occurs in actual game-time when I really should be reaping the rewards of my efforts during the week. My lack of time in seeking golfing perfection is of course a big issue, but apart from my near phone number handicap, I would have to say that my biggest handicap is probably my lack of talent. I really don’t have much of it when it comes to yielding a club…
I’d like to say that my excuse for why I’m so lousy at golf is that I wasn’t born with the innate genius of Tiger Woods (you might be getting some idea of the mirth this analogy now causes in my workshops!).
However, one could argue whether Tiger was born with his talent and that’s why he’s so good, or whether it was an acquired ability? We are of course talking about Tiger’s golfing prowess and no other innate ability to score (ok, that’s the first and last joke I’ll make about that!).
How did Tiger get so good? Was he born with it or did he work really hard to acquire his talent? Well, I think his talent has more to do with the fact that he started playing golf as soon as he could walk and hold a club. He had an excellent coach and mentor in his father, he has worked almost religiously on his game seeking out the best professionals to show him where he’s going right and going wrong. Then there’s the practice. Tiger’s a bit of a hero of mine (golfing only) and I’ve seen a few documentaries on him. I’ve seen him practise rain, hail or shine for 8 hours a day. He’ll chip 300 balls out of a bunker, step one metre back, and chip another 300 balls, and so on.