Macro Minute: Week of October 30, 2023
A few weeks ago I wrote about Ben Carlson’s 24 things. In it I mentioned that I would write about a few of my investing beliefs. This is a first attempt to do that. I will keep it to five and do this a few more times in future Macro Minutes.
So, here are some things that I believe about investing:
Investing is Easy in Theory and Hard in Reality
It is easy to know that we should invest in a diversified way and continue to do that throughout our lives. The problem is that we are human and are still affected by fear and greed. We look around in good markets and see other people making more money than us, so we get greedy and begin to reach for higher returns at the wrong time and suffer a drawdown that is more severe than if we had done nothing. Or when markets do turn down, and we get fearful and sell before a recovery.
Most investing mistakes can be overcome given enough time in the market.
Don’t Be Afraid to Lose Money
The best and most respected investors have all lost lots of money. The markets almost demand that you have to suffer through periods of loss in order to be a successful long term.
Have a Plan
To quote Iron Mike “Everyone has a plan, until they get punched in the face.” Make sure your plan accounts for bad things happening. When you buy something, anticipate that you will lose money.
Expectations Are Where the Majority of Mistakes are Made
I believe this is true of most things in life. It is only when something doesn’t meet our expectations that we feel the most hurt. To apply this to investing, we tend to look at graphs and see the start and end points, not noticing the squiggles in between. For example, people will look at the chart and wished they would have bought AMZN. They would not even realize that AMZN had a 94% drop at one point in its stock price. That’s hard to hold through for anyone. What if you entered into a position expecting what it’s average return has been and get a big drawdown instead? That’s enough for some people to stop investing altogether.
These are five investing beliefs that I hold. I would not say that these are my highest conviction beliefs, but I will write about more in the future.
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