Pic: Some time after my 2017 financial collapse….
I started actively trading in 2016. Looking back, I had absolutely no clue what I was doing, but I was convinced I knew it all. Call it youthful ignorance.n
What I lacked in knowledge, I made up for with blind enthusiasm. I traded headlines and invested in every ticker symbol the financial media was peddling.
After a few quick wins, I was hooked, convinced that my proprietary blend of google searching and back-of-the-envelope math was enough to beat the market.
This tweet pretty much sums up my ‘investment mandate’ at the time.
As early retirement beckoned, it all came crashing down. (Cue shocked gasps)
XRP and a few more YOLO trades wiped me out, and I just sat and watched it happen.
As a guy who spent 1/3 of his wages on rent, and the rest drinking pints on Camden Street, I had essentially suffered a loss that I was convinced I would never financially recover from.
It seems so ridiculous looking back now, but as a 20-something with very little savings to his name, this was about 20,000 times more than I could afford to lose.
It was both the best and worst thing that ever happened to me. It was an expensive lesson to learn, but it set me on a path I still follow to this day— a path I have made a career out of.
Like a phoenix, I vowed to rise from the financial rubble (Ok, I may be milking it a bit now, I’ll stop)
In short, despite the losses, I was hooked.
As an ode to a more reckless 25-year-old me, I have put together some tips I wish I had known before I started (not that I would have listened)
Investment Ideas Straight to Your Email
1. Don’t overcomplicate it.
Everyone wants the optimal portfolio. They want to know the name of the next stock that’s going to 10X in value. They want maximum returns. This pursuit of the perfect trade often results in people investing in nothing at all.
We operate in extremes: everything or nothing. The absence of the illusive perfect investment means we do nothing with our money. Sitting on our hands, waiting for a life-changing investment to come up and slap us in the face.
Now, I hate to be the bearer of bad news here, and this may be stating the obvious, but some people need to hear it. There is no perfect investment, but thankfully, there are plenty of good ones, and that’s a start.
Simplifying the problem instead of chasing perfection allows you to take the necessary steps to get started. From there, you can build out your investments over time.
If you’re currently sitting in cash with no idea what to do, invest in short-term treasuries. Instead of 0.2% from your deposit account, you’ll get 4.8% for a similar level of risk. That’s a 20x improvement right there.
Is it the perfect investment portfolio?
No.
Is it a massive improvement relative to your current situation?
Absolutely.
Strive for progress, not perfection.
2. Adjust Your Expectations
Nobody gets it right all the time; you simply need to be right more often than you are wrong. Casinos are heralded as money-making machines but only win 54% of the time. Not every investing position will be a winner. You will be wrong plenty of times over the course of your investing journey, and that’s perfectly fine.
3. There will always be risk
This is one for all the accountants out there trying to mitigate every risk.
The returns you get from the stock market over time is not free money; it’s the rewards you get for accepting the risk associated with a specific investment. Now you can manage that risk through research, diversification and hedging, but you will never fully eliminate the risk.
There will always be question marks. There will always be unknown unknowns. But if you’re lucky enough to find a company with a competitive advantage, strong growth potential, and good cash flow management, don’t wait until every little potential pitfall has been eliminated before you make a move.
Investing is a game of probabilities, not certainties.
Waiting for that flawless investment will leave you sitting on the sidelines.
Remember this if you are suffering from analysis paralysis on a specific investment.
Now is the perfect time to set up your strategic long-term investment plan
4. Find a niche
There is an abundance of opportunities out there, but trying to catch every potentially profitable investment will leave you with countless investments you have zero conviction over.
Focus on one or two sectors of the market and become an expert in these areas. This will make it easier from a comparative standpoint and ensure that your knowledge is more than surface-deep.
You will be able to recognise genuine opportunities when they present themselves, and you will have the depth of knowledge needed to create true conviction in what you hold.
Jack of all trades, master of none and all that.
5. Set Some Rules
These can be rules around allocation targets, the metrics you prioritise when analysing a stock or rules about when to enter and exit trades. Whatever the rules, make sure to have them clearly defined from the outset and NEVER break them. No exceptions.
Far too many people have lost entire portfolios because they kept readjusting their stop-loss lower, losing it all while waiting for a bounce that never came. Make some rules and stick to them. It will take a lot of the mental torture out of the experience.
If you second-guess yourself as much as I do, it’s a game changer.
6. Never over-estimate your own conviction
Conviction is important, but far too often, people’s unwavering opinions are just blind faith masquerading as conviction.
People spend so much time looking for the next buying opportunity that they forget to do recurring analyses on the names they already hold.
Your original conviction was formed by a narrative that will invariably change over time. Make sure you are always trying to poke holes in your previous assertions. It’s a debilitating but necessary part of the process.
Final Word
No get-rich-quick schemes here, Instead, it’s a constant but rather addictive learning curve where the opportunities get easier to spot over time, but the pitfalls remain relentless.
I love everything about this game, but that doesn’t mean it’s easy. There’s an entry fee in the form of hours worked and a recurring fee in the form of constant uncertainty.
For those who get it right, financial elation awaits. But beware, regardless of how much you think you know; the information is constantly changing, so the probability of success can be lower than you think, no matter how strongly you believe in the future story you tell yourself.
Final Tip: We all learn by doing, so start small but start now. You will never have it all figured out, accept that and start anyway.
Baby steps
In the meantime, happy investing and feel free to reach out with any questions. Always here to help.