Let's clarify something immediately before we even begin. I call myself an inexperienced investor because I have not yet gained a lot of experience, not because, as is often associated with this adjective, I am making random forays into the investment world. On the contrary, I am reading books about investments and I'm following up on all the dedicated blogs and websites that appear (to me) to be trustworthy.
A few years ago, when I started to go to forums and websites dedicated to investment advice, I was immediately struck by the fact that a number of them seemed, frankly, unscrupulous.
Today I would like to tell you what I have done so far and how I acted in my first year as an investor. I realise that there’s still a lot to improve upon and refine, but I’d like to share my journey and awakening as an investor.
I'm a proud guy, so it takes a lot for me to admit my shortcomings. However, I thought I’d share some of the mistakes I made by not following solid investment advice, just because it seemed counter intuitive!
1. Long-term forecast wins, or watch the weekly fluctuations?
When I started investing, I thought I had to pay close attention to what was happening to my money.
Being interested in something is synonymous with taking care of it, right?
This is why, in the early days, I’m not ashamed to say that I was checking my home banking up to several times a day. I even kept a notebook with me, in which I marked the swings of my investments, to keep the situation under control at all times.
However, on the forums and websites I followed I was being assured that, in fact, the best way to view your investments was over the long-term, rather than on a daily basis. It seemed strange to me that this should be the case, and I took it as nothing more than just a lack of interest in their own investments.
Because I assumed they were wrong, I often chose to disinvest when I saw that my investments had fallen too much, and then reinvested when the markets went up. Obviously, it didn’t take me too long to realise that far from making money in this way, I was in fact losing it.
I did a little more searching, and I read this article, which served to confirm the information I had already received. It said that the right time to invest did not exist and that compound return should be exploited, which is only possible in the long term.
I have to admit I'm doing a test. I started to check my home banking less. For now I do it weekly, but I would like to be able to do it even more rarely, since I follow the news so much and keep myself informed. After all, if something happens, I would like to know! My test was put to the test recently when I saw a fluctuation in my investments. I grit my teeth though, and tried to leave my money alone and to resist disinvesting. In fact, I even invested a little more capital, as I read that it’s a good idea to exploit these low periods by buying investments at a “discount” rate.
We’ll see what happens in a while, however, for now, I recovered what I had lost and I'm starting to see my first earnings in investment…
2. Hold logic as sacred or follow your gut?
I am an emotional type and I know this, so I don’t always make logical decisions when I should. I also know, however, that in life, when I haven’t listened to my intuition and when I’ve suffocated my emotions, it only served to compound disaster.
I kept this in mind when I started investing, and it took me a while to successfully fight back against my anxiety. When I saw the markets oscillate a little too much, I couldn't help but get anxious. My stomach would go tight and I would feel sick, because I used to think that that was my money, and maybe I was being an idiot to invest it like I had.
On the sites and forums I followed they advised that it was wrong to get anxious, and that I had to leave my emotions out as much as possible. They said I risked making big mistakes due to my panic. Now I’ve lived through my first minor market “swing” I’m starting to think they might be right, and that the long-term horizon theory is starting to make more sense. I’ve started reading books about Behavioral Finance, which explains how and why we must contain our emotions when we invest: we'll see how it goes!
3. Do what others do or look after your own needs?
In the early days, when I went to the forums, I had one main goal: to seek out the people who seemed most trustworthy and authoritative.
I found three, the maximum number I allowed myself, and I read all the posts they had written, to understand what investments they had made. I also wrote to them in private asking for more details. All of them though, came back to me saying that their advice wasn’t meant for me, because I was a young single male, whilst they were older and had families. Because of this, they had made investments that wouldn’t necessarily be good choices for me. They also told me that I should take the time to understand what my needs were, and not to follow what others did without thinking.
I thought they were just jealously guarding their hard won investment knowledge, and didn’t want to share what they'd learnt. Because of this, I disregarded their well meant advice. It’s only been recently that I’ve realised that maybe they were right after all. I’ve since gone back and read the details of some of their investments and realised that they weren’t suitable for me, as they had said. But, you learn by making mistakes, and luckily I didn’t lose too much money in the process!
And you, what type of investor are you? Where are you on your investing journey?
Your capital is at risk, and past performance may not be a reliable indicator of future results. Oval Money is not permitted to provide financial advice, and if you have any questions please consult an expert.