7 Timeless Investment Lessons that can Help you Sidestep Common Traps
by Mashum Mollah Investing 26 March 2019
According to a Prudential study, conducted among 1000 investors between the ages 35 and 70, 44% of those who invested in stocks said that they never planned on doing this again. Additionally, 30% of US venture funds deliver negative returns, and another 30% deliver single-digit returns. Although these numbers may not paint the whole picture, they do indicate a less glamorous side of investing, one that beginners often neglect in favor of success stories.
Everyone wants to invest, but not everyone is ready to be an investor in every sense of the word. As the shadow of financial uncertainty grows larger and the telltale signs of a new economic crisis intensify, everyone wants a safety net, a second or third source of income that can guarantee stability. Investments can provide that, but, at the same time, the investment world can be ruthless, so it’s important to arm yourself with knowledge before you start your journey. There is no shortage of books, talk-shows, and podcasts on investing, but before you get into advanced strategies, make sure you have a solid foundation. In addition, you may want to consult with expert wealth investment management services for financial planning and advice. Experts in this field can ensure that you are taking controlled risks and making smart investment decisions so your wealth grows in the very best way that it can.
In investments, there’s no room for emotion:
Emotions make a good human being, but they don’t necessarily make a successful investor. If your strategy is not based on clear, objective facts, and you are governed by your fears and hopes, you will develop a cognitive bias. Warren Buffet’s example is very relevant here because he is one of the calmest and most rational investors and he has talked about the importance of emotional stability many times. It is normal for the market to be volatile and sometimes failure is part of the process, but the moment you start panicking you also start to lose control, be overly cautious and take decisions out of fear.
Investing in what you understand is one of the best ways to mitigate risks:
When investing, your goal shouldn’t be to eliminate risks (after all, that would be impossible!), but to mitigate them. One of the best ways to do this is to know yourself and know your circle of competence. Every investor has one, whether it’s an investment style, a specific industry, or an asset class. When you’re starting out, focus only on the one thing you know you master and you will be less likely to make uninformed decisions. Sometimes, this approach means saying no that hot new opportunity that everyone’s investing in, but the “next big thing” is often no more than hype. Of course, this doesn’t mean you should limit yourself and never expand your circle of competence. A good investor should constantly invest in their education, but investing in a field you are an expert in can help you avoid many bad decisions.
Don’t expect results overnight:
We live in the age of speed and the attitude of investors often reflects this. According to a Global Investor Study conducted by Schroders Investment Management, less than a fifth of investors hold investments for at least five years and the general tendency, especially among young investors, was to choose short-term investing. However, expecting quick results and not having enough patience is not a sustainable strategy. David Dreman said that Patience is a crucial but rare investment commodity and Warren Buffet frequently teaches beginner investors that temperament always wins over intellect. No matter what you invest in, be patient. Don’t rush to seize the opportunity, take the time to analyze it. Don’t drop an underperforming company after only one year, wait for it to execute its strategy first.
Analyze prospective markets:
One of the best things about being an investor is that opportunities can be found all around the globe. According to the 2019 GDP growth forecasts, the emerging markets of Bulgaria, Vietnam, and Peru have a positive outlook and offer undeniable opportunities to investors.
Another destination is Israel, which is becoming a prime destination for Chinese investment, especially in the areas of smart manufacturing, AI, cybersecurity and telecommunications. According to Dorian Barak, veteran fund manager and private equity investor focused on emerging markets, Israel represents both an innovation powerhouse and a strategic alternative to the US and Western Europe.
The new generation of Chinese investors has been one of the first to notice Israel’s high-tech potential and “its people who have the spirit to create future technologies”. For example, Kuang Chi, where Dorian Barak is Executive Director, invested in Israeli companies developing smart city technology for potential use in China and worldwide.
Develop critical thinking:
The Internet has made it easier for aspiring investors to assimilate new knowledge with unprecedented speed and ease, but the Internet’s accessibility can also turn into a trap if not managed wisely. Information is everywhere online and everyone who has an opinion can write about it, but that doesn’t mean they are an authority you can trust. When using the Internet to seek information, weigh and consider every opinion and always check the credibility of the “expert” who has it. Don’t let yourself be carried away by clickbait and the trending hashtag of the day. Think for yourself, and don’t let the white noise distract you.
Find your mentor:
Although self-thought investors do exist, most success stories were made possible by a mentor’s guidance. A mentor can help you understand the most important investment facts, develop your own investment style and, most importantly, they can give you advice from their own experience. Whether you live in New York or Warsaw, whether you study at Harvard or a small community college, a mentor you admire will make your journey into the world of investments a little less confusing.
Never stop learning:
Whether you see investing as a professional or as a passion, always strive to become the best version of yourself and always invest in your education. Improve your finance skills by taking courses, read the books of world-class investors, surround yourself with people you can learn from and never assume you know everything. Last, but not least, pay attention to what happens in the world, politically and socially, because these events have a ripple effect on the economy.
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