Minimising mistakes in Investing
No one can predict future accurately and it goes without saying that investing is a game where every player is trying to predict the future. While it is possible to do research follow trends and identify some great opportunities doing it consistently and over very long periods of time is no easy task. To be able to make a sizable corpus and grow it overtime demands two things
- Significant amount of investment
- Consistent approach
Investing is a part of life and like everything else in life, mood swings impact investing as well. One finds it incredible hard to put money when the market is down and portfolio is in red. The single most important thing, is to be minimise the possibility of ruin.
“Everyone makes money when the market is rising But what determines whether it will make you wealthy or leave you bleeding on the side of the road is what you do during the time it is collapsing.”
Every step has to be thoughtful, and a carefully considered one. One mistake can undo efforts made over very long periods. Therefore we need tools which can help us minimise the possibility of making mistakes. Think of options which one wont regret after 10 years, 15 years, 20 years. One way this can be achieved is by forcing oneself to make as fewer decisions as possible. Warren Buffet has spoken about thinking of having a card which has 10 holes to be punched over lifetime. Once we set such a constraint on the number of decisions that can be made, we would force ourself to think really hard before making that decision.
Indexing allows an easy to follow path for while minimising the risk of making a wrong investment. The idea is very simple, bet on the market to get an average return as opposed to trying picking and choosing individual Stocks or Mutual Funds, which would increase the probability of getting a poorer return or worse significantly reducing the value of investment.
“A little bit of humility goes a long way in saving your ass and your cash”
The problem with stock picking is that one loses nerve once market starts moving against your chosen direction, and then one starts doubting the thesis of investment. Unless you are in the profession of analysing stocks, it is nearly impossible to make a rational call at market extremes. Analyse and understand your limitations and act accordingly, I tend to freeze during market downturns. A poorer behaviour would be dumping stocks and fleeing the market and many investors still do that. In our mind we justify all such financially harmful decisions with a number of seemingly rational reasons. More often than not these justifications are just a pacifying technique, with none being rational by any stretch.
To be consistent and singularly focused on achieving financial goals we need a vehicle which can be depended upon irrespective of the market movements. One which you are certain of not regretting after many years and one which gives you a reasonable confidence in achieving.
I have been using STI and IWDA.L as two ETFs for investment. I may add a third one VWRA and that would be all I plan to invest in. I have made few mistakes by investing through certain robo-advisors, a few direct stocks but I plan to minimise decision making in terms of vehicles for investment and thus stick to only the three mentioned ETFs. I would have loved index funds, which are better than ETFs but unfortunately I have not been able to find those and therefore have decided to stick to the ETFs.
Keeping it simple, Minimising decision making, and Avoiding mistakes is all I want to do while on the journey to achieving financial goals.