4 Lessons I’ve Learnt From Stock Market Investing
Warren Buffet said: ‘The first rule of investing is never lose money. And the second rule of an investment is don’t forget the first rule.’ Sounds so simple and to tell you the truth… it is.
But during my short time as an investor, I haven’t exactly made it that way. On reflection, I have made lots of silly mistakes, and hopefully, you don’t do the same!
So here are 4 things I have learnt about stock market investing…
Be Patient — Investing Is a VERY Long Term Game. Understand Compounding.
Warren Buffet said ‘The stock market is a device to transfer money from the impatient to the patient.’ Unfortunately, you’re not going to become a millionaire overnight with stock market investing. When it comes to investing, it’s essential to cultivate the art of patience and understand that time is actually our ally.
For example, as of March 2023, Warren Buffet has a net worth of $115.3 billion however over $100 billion of this money was accumulated after his 50th birthday (he’s 92 years old now). Why? The magic of compound interest and a few smart investment decisions. The longer you leave your money to compound the better. As Charlie Munger says ‘The first rule of compounding: Never interrupt it unnecessarily’.
Okay so we’re not exactly going to reach Buffet’s level of wealth, but hopefully you understand that the longer you’re able to leave your money to compound (presuming you’ve used a good strategy), the richer you’ll be in the years to come.
Which leads me onto the next learning point…
Start As Young As Possible. Start now.
There’s an old Chinese Proverb: ‘The best time to plant a tree was 20 years ago. The second best time is now.’ When it comes to investing, the earlier you start the better. If you’re anything like Warren Buffet you’ll start investing at 11 years old, but of course there’s only one Warren Buffet!
If you haven’t started investing yet, then don’t worry you can start now because it’s never too late. By investing consistently when you are young, you’ll allow for compounding to work heavily in your favour.
Here is an example of why you why should start investing as soon as you can:
Consider you have 2 people, one 25 years old, the other 35 years old. Each person invests $100 a month until they reach 65, with an average annual compound return rate of 5%. The person who started investing at 25 years old would have just over $160,000, nearly doubling the 35 year olds’ returns. Mind boggling!
You can’t time or predict the market
It’s virtually impossible to time the market. You’ll probably never buy or sell stocks at the perfect time. All you need to understand is time in the market beats timing the market. One thing that history has shown time and time again is that the longer you’re able to stay in the market, the higher your odds of success. The longer you stay invested the less likely you are to lose money, and actually increase your chances of making a significant return on your capital.
For example:
The average annual return for stocks from 1926 to 1987 was 9.44%, but if would’ve pulled your money out of the market and gone to cash and missed the best 50 of those 744 months, you would’ve missed out on all of the positive return. Once you’re invested in the market, stay IN the market!
Simple And Boring Is Best
When you’re new to investing, it’s difficult not to get carried away and influenced by the next hot stocks which are supposedly going to grow 1000% within a year (like I did!). But the earlier you understand beauty lies in mundanity, not glamour in investing, the better.
Joel Greenblatt, hedge fund manager and writer said: ‘For most individuals, the best strategy is not the one that’s going to get you the biggest return. A good strategy is the one that you can stick with even in bad times’. A simple and consistent investment strategy that works well over time — one that we believe in and understand, the more likely we are to adhere to it through some of the best and worst times.
For many people, this would be predominantly investing in Index Funds, ETF’s and Blue Chip Stocks. A simple, safer, easy to understand, effective way of investing will triumph in the long run. Good investing should be like watching paint dry, extremely boring!
Am I a super investor? Absolutely not! I’m just sharing what I have learnt over the past few years. Hopefully these lessons can help you out too on your investing journey.
See you next time,
Yours Sincerely,
Tom
