by elmads

Introduction

It might seem weird to see such a title for an article, because how can investing money teach us about life? when it mostly correlates with numbers, finances, money strategies, capital allocation and economics?

Yet, there’s this one factor that most of us forget about this endeavour. The participants in the markets consist of people. Human beings with different behaviours and emotions which also significantly influences how they make decisions both in life and investing.

What You Believe in Will not be the Same for Everyone Else, and that’s Absolutely Fine.

Investing is a vast field consisting of various assets with a wide array of disciplines and strategies. Some of the examples are value, growth, dividend/income, buy-and-hold, drip feed, indexing, swing traders, intraday traders, and other more.

Each discipline has its own way to make money in the markets. While there are others who are focused on what they do, there are still some who strongly claims and insists that their discipline is the best method to achieve financial independence.

A bold statement indeed, but when you look into the successful investors throughout history such as Warren Buffett (Value Investor) Charlie Munger (Growth at a reasonable price Investor), Carl Icahn (Value Activist Investor), Jim Simons (Trader Mathematician), Benjamin Graham (Net-Net Value Investor), Tobias Carlisle (Deep Value Investor). There is one commonality across the board: There is no distinct investing or trading approach that clearly states which one is the best investing or trading strategy in the world.

Despite this, we cannot disregard the fact that these investors and traders are successful in their own right and way. They borrowed some principles from other people and incorporated it with their own personality and beliefs. In turn, it gave them a strategy that completely worked for them.

If what you believe in works for you, and most importantly, it doesn’t hurt anyone in the process, then it shouldn’t matter if others don’t agree with you. 😁

Below are examples of successful investors and their chosen investment asset and strategy. 👇👇👇

Stop Worrying what You Cannot Control, because You Can’t Do Anything about it in the First Place, that’s Why It’s Called the “Uncontrollable”. Focus only on what You can Directly Influence and Change.

Some investors and traders try to achieve the best return in the markets by timing it. Unfortunately, this always come to no benefit for them.

Consistently and exactly timing the market requires the ability of foresight. But then, when we take into account the fact that the market consists of millions of individuals who love to think that they are completely rational beings with control over their emotions, we can already surmise how impossible it is for a single person, most especially a group, to be able to perfectly time the markets. Despite this, speculation on timing the markets will always occur no matter what time frame we talk about. It’s all due to the nature of human emotions.

And such investor/trader behaviours are not new. Fear and greed are the two market forces that cause booms and busts, and economic downturns. The Tulips mania, South Sea bubble, Dot.com crash, and the Global Financial Crisis, to name a few; were fear and greed also played its hand in these historical events.

These are the things that we, investors, will not be able to predict at all, one of the many things that are out of our hands. Price crashes that could substantially destroy our investment portfolio (if we realise our losses by selling it at a complete loss)

The financial market is a big, uncontrollable market that presents both positive and negative surprises. We must accept this uncertainty; it’s just like what life has in store for us—a future with possible multiple outcomes. We can definitely take actions today to influence and shape our future, yet despite our rigorous effort, the outcome that may happen will not always be what we have precisely predicted and wanted, either for the better or for the worse.

Nonetheless, this doesn’t mean that investing in the financial markets, to achieve good returns on our investments, will be totally out of our control. There are things that can be changed, such as our behaviour, perspective, and investment strategy, to lead it to the nearest possible outcome we want to achieve.

• Behaviour – No one in this world is completely rational and in full control of their emotions, but this doesn’t mean that it is impossible for us to achieve such near to high level. There are people who reduce the risk of experiencing negative emotions by decoupling themselves from the external factors that could lead to such emotional impulses and regretful actions.
  
  In investing, being daily exposed to market sentiments via news, articles, videos, and social media platforms can significantly influence our investment decision-making. Staying away from it is a simple yet very helpful approach.
  
  Furthermore, self-awareness is paramount to keeping our extreme emotions at bay. It also helps us to learn to not take any actions at all when we are in an extreme emotional state. The ability to look within ourselves from a third-person view is a good practice of self-awareness and mindfulness.

• Investment Strategy – This is important, because it becomes our cushion and guide in making decisions. If we are able to build and adhere to strong investment disciplines, rules, and philosophies, then no matter what happens to the markets, we will be able to cope, adjust and be fine. This grants us the understanding and ability to make a more rational investment decision. In life, as long as we follow our own principles and philosophies, then we’ll be able to navigate life as smoothly as possible.

“The chief task in life is simply this: to identify and separate matters so that I can say clearly to myself which are externals not under my control, and which have to do with the choices I actually control. Where then do I look for good and evil? Not to uncontrollable externals, but within myself to the choices that are my own…” 

-Epectitus from his book Discourses and Selected Writings

Compound Interest. Great Achievements and Successes were all once Micro Habits done Consistently over a Very Long Period of Time.

“Compound interest is the 8^th wonder of the world, he who understands it earns it, he who doesn’t pays for it”

-Albert Einstein.

This is one of the cliché quotes that has been used time and time again in the investing world. Even though some of us are fed up with reading and hearing it, we still couldn’t disregard the fact that this quote holds absolute meaning and power for those who understand it.

In investing, compound interest is the backbone and powerhouse of accumulating wealth. It is where all of our investment gains are attributed, via the capital we have invested and most especially reinvested over time, allowing our hard-earned money to grow into a larger amount in the future. I always explain this concept via simple mathematical equations photograph to make it more understandable. 👇👇👇

Contrary to what most people believe, compound interest is not only applicable in investing but also in every aspect of our lives, may it be for our relationship, career, health, spiritual and emotional well-being. Any action done, consistently and persistently in the long run will yield extraordinary results.

Take note, Compound interest is neutral; it doesn’t differentiate the bad from the good. What do I mean by this? Compound interest harness both the light and dark side of things. Let me explain this further by showing you different scenarios.

• Finance – Compound interest is the reason why our money grows exponentially when we invest religiously for a long period of time (both for business and/or asset investments). The opposite of this is through accumulating debt. The longer we do not pay our debts, the greater the interest we will need to pay. Taking on debt, not paying it immediately and mismanaging it just means we are fighting against the 8th wonder of the world, the power of compound interest.

• Fitness – The more we consistently run in the proper form, stretch and do muscle strength exercises, the more likely we’ll strengthen our muscles required for running, our core and our endurance to be able to run faster and for longer distances. Whereas, the older we get, without having any exercising habits and mindset, the harder it would be to start building our strength and endurance, and the more likely we’ll just have a further sedentary lifestyle.

• Health & Eating Habits – On the one hand, if we’ve been used to eating only a substantial amount based on our daily energy/caloric expenditure, then it would be easy for us to do it over a long period of time. On the other hand, if we’ve been used to eating well above our daily energy expenditure for decades, it would certainly be an arduous task to change that habit immediately.
  
• Mindset – If we’ve been exposed to a pessimistic environment for our entire life, then we will most likely perceive the world around us the same as the environment we have been exposed to. Changing our mindset and perspective is not impossible, but it will require for us to have a strong will, time, and effort to learn, relearn, and, most importantly, unlearn, our previous beliefs and way of thinking. The longer we’ve been exposed to such environment, the harder it is to change our point of view. The inverse is also true: being exposed to a community with a positive outlook in life instils confidence and pulls out both the learned and innate strengths within ourselves.

What we compound is not only money, but also how we think and move. Let’s do things now that our future selves will be forever grateful and thankful for.

Have the Humility to Know that You Don’t Know Anything and Will Never Know Everything.

There is this quote from Socrates that has been deeply impactful for me in my investing journey, about learning and in life in general.

“I am the wisest man alive, for I know one thing, and that is that I know nothing”

-Socrates

The stock market is erratic, it can go up and down in terms of prices, and I do understand that I cannot predict what will happen after a few months, years, and most especially decades. To mitigate this unknown, I just focus on understanding what makes investing more comprehensible from my own perspective. Hence, I used the discipline and principles of value investing, to understand the underlying business itself, because shares are part ownership of the company. It’s a no-brainer for me that, if the company does well, so will its stock price over a long period of time.

I also understand that there are a lot of things that I do not know about the companies I own, despite doing analysis. I came to the conclusion that if I want to achieve my financial goals for myself and my family, I must accept that this endeavour will be a never-ending learning experience for me, and that failure is a natural part of it. Setbacks and failures in this endeavour will further humble me and always remind me that I do not know everything. The moment I stop learning is the moment I’ll stop growing as a person and also stop earning well in this investing endeavour.

Why learn forever? because everything changes, including the companies and businesses. There was a time when the oil and gas industry was the largest and most profitable in the world. Fast forward to today. They are still a great and profitable industry, but their time has passed already, as the technology industry currently reigns supreme.

That in mind, will the technology industry still be the number one and most profitable industry after 50 years? 100 years? 200 years? 500 years? I wouldn’t know, and I assure you no one will be able to predict it with 100% certainty. But, what I could learn are the new things that can come onto the horizon, the ones that can be a part of a probable shift in sectors and industries, if ever there will be one during my lifetime.

This is the reason that I need to continuously learn and be up-to-date with time. What was previously known and practised could be different tomorrow. Similarly, humans once believed that the unknowns about the world were due to the gods and their godly powers. This was the universal truth during that time, then one man came into the picture and changed it all with his theories, calculations, and scientific laws, and this man’s name is Sir Isaac Newton. He proved that the things happening in our world and the universe are due to its mechanical structure; that’s where the laws of motion proved itself and erased the archaic belief of humanity that the mythology of gods are responsible for everything.

What else? Charles Darwin and his theory of evolution and natural selection. It was both revolutionary and controversial back then, and it still is to some people to this day.

That being said, Charles Darwin’s theory states that change takes time, and substantially alters a species’ genetic traits to cope with the environment in which it is born. It is exactly the same with businesses and companies. Do you remember a time when people used horses for transportation? then Henry Ford changed the land transportation industry with his Ford Motor Company. What changed? People wanted comfort and a faster way of transportation than horses. It took a substantial amount of time and resources to take care of horses, raise the, feed them, and clean their urine and faeces.

Additionally, due to Henry Ford’s ingenious innovation of the “Assembly Line”, the automotive industry further boomed and was able to produce large quantities of automobiles within months and years to keep up with demand. Unlike with horses, where you need to breed them, and it takes a substantial amount of time for them to grow. Companies that were unable to adapt to the significant change in transportation were either wiped out, or acquired by a larger company.

The Humility to keep on Learning, Relearning & Unlearning. 😁

Have Patience and Take Action when the Time is Right.

You’ll be hearing everyone say that investing is a patience game, where returns are best made over a long period of time if done right and consistently. This is true, and this is all thanks again to compound interest.

But this isn’t about compounding; it’s about acting when the opportunity arises in order to maximise long-term compounding returns.

This fifth discovery came only after the previous four. To be honest, the four are my personal prerequisites for understanding how to do this last learning of mine.

(Beliefs and Opinions) The first one is to understand myself. being aware of my own beliefs and their differences from others. That I share the same opinion and mindset with others is not important; instead, being happy and fulfilled is, as long as I do not hurt anyone in the process.

(Controllable) The second is to learn to only spend my time and energy on things that I can actually influence and change.

(Compound Interest) The third is that atomic habits practised consistently over a long period of time will yield promising returns and assist me in achieving goals for myself and my family.

(Humility to Learn) The fourth is to be humble and realistic enough to know that I do not know anything. Learn forever.

Adding the four together gave me the vision to see opportunities in the markets. to know when to buy, to know when to hold, and to know when to sell shares of a business. It gave me a simple structure and principle to follow in my investing endeavour. It helps me reduce the risk of me doing further stupid things in my investing decision-making, but don’t get me wrong I’ll always for sure, be stupid in investing, but less stupid as time passes by. hahaha!😂

The final and fifth one that completes my learnings is patience and seizing opportunities, both of which are very applicable to my life.

Just like a lion waiting patiently to pounce on its prey. Patience gives tremendous power to those who know when to strike and seize opportunities. It also helps me to maintain a margin of safety with my investment. What I mean here is that if I deem a certain business to be worth, let’s say, $10 billion in market capitalization, I’ll put in a 15% – 50% margin of safety (depending on the business and my understanding of it) because there are things that I do not know and are out of my control. So, instead of buying it at $10 billion in market cap, I’ll buy it at $8.5 billion in market cap (with my 15% margin of safety). I’ll patiently wait for the stock price of the business to reach my deemed intrinsic value, including its margin of safety.

“A lot of opportunities in life tend to last a short while, due to some temporary inefficiency… For each of us, really good investment opportunities aren’t going to come along too often and won’t last too long, so you’ve got to be ready to act and have a prepared mind.”

-Charlie Munger

The downside is that if it doesn’t reach my target buy price, then I wouldn’t be able to purchase it, and I would have lost the chance to purchase the business. But that’s a small price to pay when compared to stock prices crashing because of a probable economic downturn or black swan events (which again are uncontrollable and unknowable).

• Being patient enough to save money and postpone gratification with our wants in order to build our personal financial protection and core (insurance, life and medical, emergency fund, and cash flow) will be ultimately comforting once completed and done. Nothing beats having a good night’s sleep and peace of mind.

To Sum It Up

• What You Believe in Will not be the Same for Everyone Else, and that’s Absolutely Fine.
• Focus on what you can change, influence and control.
• Compound Interest. Great Achievements and Successes were all once Micro Habits done Consistently over a Very Long Period of Time.
• Have the Humility to Know that You Don’t Know Anything and Will Never Know Everything.
• Have Patience and Take Action when the Time is Right.

The learnings from investing and personal finance will further grow and expand as I continue this path, and my willingness to share them to others will also go hand in hand with it.

I am fully aware that I will never ever be the best person in this field or any other field, but I am a better person today than I was yesterday, and the best version of myself will be the future me that I have yet to see.

Our perspective changes when we are able to accept that we’re not competing with anyone else and that helping others is also a goal that can change how we see ourselves, and the life that we have and also want to have.

Investing led me to such a mentality and principles, both in financial management and in life in general.

For my readers, I do hope and pray that you also find fulfilment and happiness in your or will be personal endeavours, that can change your life for the better and in turn achieve the best possible version of yourself.

Knowledge is my Sword and Patience is my Shield,

elmads

This blog is for informational purposes only and not a Financial Recommendation. Not all information will be accurate. Consult an independent financial professional before making any major financial decisions.