Today I figured I would share some thoughts on what I consider to be important points to become a successful investor. I’ve lived in this confusing world that is investment management for a minute or two and figured I would share what I think are the keys. Feel free to disagree as you wish. They are in no particular order. It is a three-minute read.
- First, know thyself. A huge part of being a successful investor comes down to behaviors. It may take some trial and error, but it is key you know what works for you. For example, if you prefer to invest in real estate as opposed to the market, do that.
- You may be in a hurry, but the market isn’t. I see this often. Someone invests and expects their money to compound immediately to unknown heights. This is not how the market works and the market really does not care about what you want.
- You are in a marathon, not a sprint. Similar to the point about being in a hurry, seeing growth in the market takes time. Feel free to use the analogy of losing weight. If the goal is to lose 25 pounds before some date, would you quit if you don’t lose all the weight in one day? Nope. You take your time and work toward the goal. Sadly, too many investors want the sprint-like/immediate return when in reality they are running a marathon.
- Successful investing is mostly boring, but there are periods of excitement. I think the intro sentence explains it all, but it is true. Most successful investing is boring old slow growth while there are periods of big jumps intermixed. While those big jumps give some excitement, your growth really happens through monotony.
- Dividends and Compounding are your friends. $10,000 invested in the S&P500 grew to $88,000 over the last 30 full years. By reinvesting your dividends the growth would have been nearly double to $160,000.
- Focus on things in your control. Again, the market does not care about you or your feelings. You may want it to go up every single day, but that is not reality. This is where I harp on instead focusing on things you have more control over, such as the fees you are paying and also your taxes. By being diligent maybe you can cut your costs and taxes paid by 2%. What does this result in? $1 growing at 7% a year will be worth $30 after 50 years. Drop that growth to 5% (due to high fees and taxes) and you end up with $10.
- Good financial planning is like being a guide. There’s that old boxing quote about everyone has a plan until they get punched in the face. Investing is similar. There will be times you need to adjust your plan based on conditions and changes in your life. Hiking guides and pilots start with a plan and make adjustments based on conditions. Your investing will most likely be the same.
- Time in the market works, not timing the market. Not really much else to say with this one.
- Don’t run out of the store when things are on sale. This is in reference to people selling when things drop or not wanting to invest until things look better. There is an expression in my world that investing is like if a store announces everything everything is 20% off and everyone runs out of the store. It reminds me of Warren Buffett’s comment about being greedy when others are fearful.
- Ignore the experts in the media. As with all my points above, good investing is boring. The financial pornography industry (CNBC, Fox Business, etc) gets ratings when their doomsayer experts roll out, not the person saying slow and steady wins the race.
- Nothing’s more expensive than free. You may get the invites to dinner events to share investment secrets. Be cautious as 99 times out of 100 these dinners are there to sell you something after giving you a free meal. Again, nothing in the world is more expensive than free.
This seems like a good place to stop as I have throw a lot your way. Hopefully it was helpful, but it is free and you know what they say about free😉