Share market investing is a journey every person can enjoy while making a lasting difference to their family.
Leave your ideas at the door
The first — and most common — problem I encounter when it comes to educating people about share market investing is their preconceptions.
Most people perceive the sharemarket to be risky, but it’s a matter of understanding and perception. Does a falling price tag make a T-shirt from Myer Holdings Ltd (ASX: MYR) more or less risky? To me, a falling price makes it less risky because it means I’m getting more bang for my buck.
Unfortunately, most people develop harmful preconceptions about investing before they’ve even started. For example, even if they intended to buy and hold shares for many years, if the shares fall 30% that idea goes out the window.
Much of the time people will get a tip from their friend’s cousin’s step dad’s mate, Ruben, who runs a cattery 9-to-5. It turns belly up. They sell. Then, they leave the market with their tail between their legs.
The best investors check their preconceptions at the door. They strive to interact with people who challenge their thinking.
Jason Zweig, a fantastic writer and thinker for The Wall Street Journal, says he has only had a great week if he is proven wrong.
Assuming you know everything before you have begun is a quick way to get some hard investing lessons.
Just ask Ruben.
The idea is to make your ‘identity’ as small as possible, according to Zweig. That is, most people protect their core body of knowledge and identity like it is a sacred cow. It’s not. If you desire to become a successful investor you’ll need to consider and critique others’ views and opinions for what they are.
The ability to think long term is another significant advantage that is utilised by the best investors.
As an individual investor, you are not compelled to sell a share of a2 Milk Company Ltd (ASX: A2M) because it has increased 1,000%. Some professional investors would love that opportunity.
From my experience interviewing some of Australia’s best investment managers, a long-term investment horizon can lower risk and increase your return potential. As Warren Buffett says, the ideal holding period is forever.
Finally, the best investors have a desire to work hard and learn. They know success is preceded by a desire. Alternatively, think about it like this: no one falls to the top of the mountain.
It takes hard work and a lot of ups and downs.
For every 100% gain on Xero Limited (ASX: XRO) shares, or 1,000% gain on an investment in Commonwealth Bank of Australia (ASX: CBA), there are many more investments like Telstra Corporation Ltd (ASX: TLS).
Any investment professional can value a company (at least I hope they can!), but few are willing to value 50 to find that one idea which might be good enough to make it into their portfolio.
There are no secrets to investing success, just personality traits that drive people towards superior returns. If you intend to commit to investing for yourself be prepared to invest for the long run, for your ideas to be critiqued and to work hard.