I entered the workforce in 1984, aged 18.
That means I’ve been working in Financial Services for 40 years, specifically in the investment business space for 25 years.
The longer I’m in the ‘people and their money management business’, the more there is to learn, but these are some of the things I’ve learned thus far:
1. Experiences shape your perception of risk.
Your ability and need to take risks should be based on your stage in life, time horizon, financial circumstances and goals.
But your desire to take risks often trumps all that, depending on your life experiences. If you had anything to do with Enron, Lehman Brothers, AIG, or ‘invested’ with Arch Cru, Key Data, or any of the (sadly) numerous scams, your risk appetite will be forever altered.
And that’s OK as long as you plan accordingly.
2. Intelligence doesn’t guarantee investment success.
Warren Buffett once wrote, “Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ. Once you have ordinary intelligence, you need the temperament to control the urges that get other people into trouble investing.”
I’ve met so many highly educated individuals who can’t control their emotions because their academic pedigree makes them overconfident in their abilities.
3. No one lives life in the long-term.
Long-term returns are the only ones that matter, but you have to survive a series of short-terms to get there.
A good strategy that you can stick with in those short-terms is preferable to the perfect strategy that you can’t stick with.
4. The only client question that matters is: “Am I going to be OK?”
Each situation is unique in that everyone has their own set of fears and desires.
Everyone is looking for the same answer: Tell me I’m going to be OK.
The longer I do this, the more I realise that personal finance and financial planning AKA Having a plan are prerequisites for successful investing. A product is not a portfolio, and a portfolio is not a plan.
5. It’s never been easier or harder to set it and forget it.
Investors have never had it better regarding the ability to automate investments, contributions, allocations, rebalancing and dividend reinvestment.
But there has never been more temptation to tinker with your set-it-and-forget-it portfolio because of all the new investment products, funds, zero-commission trading platforms, and trading opportunities.
Every day, avoiding the new forbidden fruit becomes harder and harder.
6. Investing is complicated. Ironically, coming to this realisation can make it easier.
7. The most significant risks are always the same, yet different.
The subsequent risk is rarely the same as the last risk because every market environment differs.
On the other hand, the biggest mistakes investors make are often the same: timing the market, recency bias, being fearful when others are fearful, being greedy when others are greedy, and investing in the latest fads.
It’s always a different market, but human nature is the constant.
8. There is no such thing as a perfect portfolio.
The paramount consideration is a portfolio’s resilience in the face of adversity. The optimal portfolio is not defined solely by mathematical models or intricate spreadsheets but rather by its alignment with your steadfast commitment through all market conditions.
Overthinking can be just as debilitating as not thinking at all. Investing involves fundamental uncertainty about the future.
You have to become comfortable making investment decisions with imperfect information
9. Our emotions are rigged, not the stock market.
The stock market isn’t rigged; it’s a reputable institution. Your emotions, however, can be your greatest challenge. Try to control them to navigate the market effectively.
10. Experience is different from expertise.
Just because you’ve been doing something for a long time doesn’t mean you’re an expert.
I know plenty of experienced investors constantly fighting the last war to their detriment.
How many people who “called” the 2008 crash completely missed the ensuing bull market? All of them?
11. There is a big difference between the rich and the wealthy.
Lots of rich people are miserable. These people are not wealthy, regardless of how much money they have.
Plenty of people who wouldn’t be considered rich based on the size of their net worth are wealthy beyond imagination because of their family, friends and general contentment with what they have.
12. Optimism should be your default.
It is disheartening to observe a growing number of cynical and pessimistic individuals each year. While I acknowledge the world’s challenges and imperfections, I believe that optimism is key to success, whether it’s navigating life’s complexities or pursuing our goals.
13. Less is more.
I’ve changed my mind on many investment-related topics over the years. But you will never convince me that complex is better than simple.
So many investors assume complicated implies sophisticated when simplicity is the true form of sophistication for investment success.
