Tuning Out the Noise
One of the most important things an investor must learn to do to become a successful investor it to tune out all the media noise around the stock market.
Historically, the stock market has handsomely rewarded the patient, rational investor over the long term.
Inflation is a silent assassin. It is relentless. Be mindful to consider and factor into your plans its destructive effect on your wealth over time.
Investing in the greatest companies on planet Earth; the companies we all use without hesitation on a daily basis has proven to produce great returns for the long-term investor.
Pay yourself first. Invest regularly. Seeing your funds grow motivates you to save more.
Always remember that the plan comes before the portfolio and that maintaining the future purchasing power of your money should be the primary objective.
The media won’t help you. They are only interested in peddling their useless daily nonsense. This time is never different, it just feels like it sometimes.
Neither you nor I can have any effect on the economy or world events. The only thing we can control is our reactions and behaviour around these events.
There will always be doom-mongers and naysayers. Don’t let them influence you. They have no more of an idea about what will happen next any more than you or I. It’s primarily guesswork and speculation. Leave them to addle their own brains.
Along with inflation and tax, high investment charges are your biggest enemy. The less you pay for your money to be managed the quicker and greater your investments will grow.
As your trusted adviser my job is not to talk you down from the ledge when times get tough, it’s to make sure you never climb up onto it in the first place.
Over the course of your relationship, a good behavioural investment coach should prove to provide considerably more value to you than what they charge for it. Many people believe they can heed and deal with all the above perfectly well on their own. They are happy to take on all this risk until one day they find out they were wrong and all to save less than 1% per year.
It’s akin to letting your life insurance lapse: you’re going to be perfectly fine every day until the last one when you need it.
Working with a trusted adviser is like investing in a big mistake insurance policy however unlike normal life insurance policies that you can only claim on once, this is a ‘policy’ you can claim on time and time again. Prevention is better than cure as it’s very easy to sell buildings insurance to someone whose roof is on fire. The problem is that it’s too late then. Far better to prepare than repair.
10 UNDENIABLE COMMON-SENSE INVESTING LESSONS
- Remember reversion to the mean.
What’s hot today is very unlikely to be hot tomorrow. The stock market reverts to fundamental returns and fair market prices over the long run. Don’t follow the herd.
- Time is your friend; impulse is your enemy.
Take advantage of the long-term benefits of compound interest and don’t be taken in by the noise of the market. That only seduces you into buying after prices have soared and selling after they plunge. This is old news and unreliable in my experience. Why would anyone be telling you how to get rich quickly? They’d be too busy filling their own boots if they knew what to buy and when.
- Buy right and hold and sit tight.
Once you have set up your highly diversified and competitively priced portfolio, stick to it through thick and thin no matter how greedy or scared you become. You must stick to your plan.
- Have realistic expectations.
You are unlikely to get rich quickly. This only happens to lottery winners and you’re very unlikely to be one of them. Long-term history has historically shown that a 7.5 percent annual return for stocks (the greatest businesses on planet Earth) and a 3.5 percent annual return for bonds is reasonable in the long run.
- Forget the needle, just buy the haystack.
Buy the whole market and you can eliminate stock risk, style risk, and manager risk, and it’s very cheap too. Your chances of finding the next Apple, Amazon, or Netflix are extremely low. Understand this and you’ll be well on your way to a successful outcome. Instead of trying the find the needle in the haystack just buy the haystack.
- Minimise the “croupier’s” take.
Beating the stock market and the casino are both zero-sum games before costs. For one fund manager to succeed in getting their calls right another must fail and they are all making different guesses on bets from the same market information. They’re just interpreting it differently. Unlike most other things in life, you get what you don’t pay for when you invest wisely in the stock market.
- There’s no escaping risk.
Countless people before you have searched for high returns without risk; and despite the many claims that such investments exist, I haven’t found any. And a money market (sitting in cash for the long term) may be the ultimate risk because it will likely lag inflation and continuously erode your purchasing power year after year. The least you need your capital to do is to keep up with the rising costs of living: that relentless silent assassin that is the inflation monster.
- Beware of fighting the last war.
What worked in the recent past is not likely to work going forward. This is known as ‘Recency Bias’ (you can learn all about investor biases in the Mind Games section and discover which ones affect you.) Investments that worked well in the first market plunge of the century failed miserably in the second plunge. I recommend that you only invest your money in things that have always worked: namely the largest and most profitable companies on the planet.
- Hedgehog beats the fox.
Foxes represent the financial institutions that spend millions on marketing and charge far too much for their seductive, cunning, and complicated advice. The hedgehog, which when threatened simply curls up into an impregnable spiny ball, represents the index fund with its “price-less” concept. Keep it simple and keep investment costs low.
- Stay the course.
The secret to investing is there is no secret. It isn’t a dark art. Investing is a simple but not easy. When you own the entire stock market through a broad stock index fund of the biggest and most profitable companies in the world with an appropriate allocation to an all bond-market index fund, you have the optimal investment management strategy. Discipline is best summed up by staying the course and taking an almost sloth like approach. I have always strongly suggested that my clients keep away from the financial foxes.
Remember that simplicity is the ultimate sophistication
Leonardo Da Vinci
