Investment has been a big part of my personal finance journey.
There are so many things we can learn about investing in modern society (share market, private equities, debt, commodities, properties, mutual funds, derivatives, robo-advisors, crowdfunding, digital assets, etc) that it seems far-fetched to ever think of mastering them all.
One of the things I was mulling on was the similarities between investing and life itself, while it was interesting to see that how we invest tends to reflect how we live our lives. Here are five life lessons that I’ve observed from my own investing journey.
1. Hard Work Pays Off (Eventually!)
All seasoned investors know that proper analysis is key to successful investments. Although all investment comes with risks, it’s important to make sure that the reward is worth the risk taken.
If you want your long-term investment to pay off in the end, you must put in the work to ensure that:
- Your investments is aligned with your investing principles
- You’re comfortable with your asset allocation and not taking on too much risk
- You know exactly what are the investments that we are entering into (e.g. equities, ETFs, robo-advisors, StashAway Simple, ASNB funds, mutual funds, etc)
Similarly in life, you work for what you want. Successful people don’t get to where they are overnight. It takes years of hard work, building the foundation in knowledge and experience, to eventually master something in life.
An important caveat is that the effort put in must be something that contributes to the goal or the hard work will be worthless.
This is like looking to invest in property but analysing the materials used to build the place. Not exactly useless, but definitely pointless for the purpose of an investment property!
2. Diversification vs Focus
All investment professionals mention the need to diversify your investments. It’s a valid argument for you to distribute and lower your risk across different assets.
If one asset class / industry drops in value, your other investments can help to alleviate the damage.
However, the counter argument to that is that your returns are also muted in conjunction with lower risks.
If you had the power to accurately predict the movements of your investments this year (and no one does!), wouldn’t you have focused on glove stocks in May 2020 which saw 3x – 5x growth in only four months? Of course, the risk is that you may also have lost all your capital if this didn’t work out. Is it worth it?
We are also often faced with the same in other aspects of life such as:
- Studies (double / triple degree, ACCA, doctor, law, psychology etc.)
- Career path (work and side hustle, or go all-in and start a business)
- Employment (stay in one job for a long time or continue job hopping)
- Skills (master a single skill or learn multiple skills)
- Holiday (save and go somewhere far and exotic, or go on several cheaper trips nearby)
3. People Will Talk, Regardless
In investing, all market news and announcements are met with either a positive or negative view. Short term traders will trade based on news, whilst fundamentalists will always look at news with a long term view in mind.
As long as an investor believes that negative news will not affect his long term prospects, then noise in the market from forums, news and analysts will be ignored.
Conversely, even if positive news keeps pushing prices higher, the investor will assess the company based on his / her gauge to ensure that the investment remains sound.
In life, all decisions you make will be met with judgmental eyes and “advice” from family, friends, colleagues, or even people you’ve just met! It takes a lot of mental discipline to shut out the noise and focus on what you want to do in life.
Remember, even if you get “advice” from others, ultimately you are the one that decides what action to take.
4. Be Clear on Your Goal and Know When to Cut Losses
When investing, you should know the reasons behind why you bought into a particular asset, share or business.
Each investment carries their own goals, be it for capital preservation, income generation or capital gains. Keep your eyes fixed on the goal. If the investment turns sour, cut your losses and move on to the next.
The epitome of this is when you discover your purpose in life and focus all your energy into achieving it. Of course, we plan for things we want to achieve in life and go for it a little at a time.
For example, building an emergency fund, accumulating your first RM100k, getting the next promotion at work and so on.
On the other hand, you also need to acknowledge when you’ve given it your all and things just don’t work.
Knowing when to cut losses is a valuable skill in life to save time to work on something more worthy. I’ll be the first to acknowledge that I’m very bad at cutting losses when it matters, meaning I usually suffer more than I should!
5. Luck is a Factor of Success
The Roman philosopher Seneca famously said “Luck is what happens when preparation meets opportunity”.
Whilst the majority of life and investments hold true to tried and tested principles, I believe that there is a part where luck is purely just that… luck.
In investing, you don’t control market movements. It’s made up of various different gears (business direction, scandal, market makers, insider movements, retail investors, traders, fund managers, etc) that are set into motion every time the market is active. In most cases, you invest without knowing which way the market will go.
By pure luck, if the gears decide to move in your favour, the prices will move in our estimated direction earlier than expected.
It’s similar to other aspects of my life which I attribute to pure luck:
- When my speaker broke down and I happened to have enough credit card points to get a new one
- The time when I wasn’t able to stay in Australia after graduation but managed to land a decent job in Malaysia
- Surviving a major car crash due to driver fatigue
- Landing a dream job but having to put up with a terrible boss
Some may call it attraction or guidance by a higher power of sorts.
All in all, I’d say it’s luck and it plays a big part in our lives to get us around. So don’t be too down on yourself if luck isn’t going your way – the tide will eventually turn at some point!
About the author
This article was originally published at betweenthemoney.com, a personal finance website by Jason Loh that focuses on money matters and investment topics for Malaysians.