“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.”
Paul Samuelson
INVESTORS LOVE STORIES
When I tell people I invest in the stock market they often
By and large, it’s not about doing research on stocks, or having a good gut instinct, or knowing what’s going on in the biotech industry. For people to build wealth in the long term, there is one trait that matters the most: being disciplined. It’s important to know that trying to time the market—selling before you think it’s going to crash, buying when you think it’s going to rally—is historically very unsuccessful. What’s more successful is having a financial plan and sticking to it regardless of what’s going on.
No one knows what’s going to happen, and people who think they do get themselves into trouble. Don’t panic when things seem bad or get overconfident when you’re doing well. Research consistently suggests women are better at this.
STORIES ARE NOT GOOD FOR INVESTING
PASSIVE INVESTING IS THE WAY TO GO
Starting early is important. Diversifying is just as important. Here’s a good definition of diversification. If you don’t want to read it, I’ll give you snapshot: Being diversified means that you are have your money in a lot of different types of investments—bonds, stocks, companies in established markets, companies in emerging markets, companies in different sectors, etc. The purpose of being diversified is that when one part of the market goes down—stocks, for instance—others may go up or go down less. The purpose is to protect yourself against catastrophe.
There’s also a concept I think you should be familiar with. It’s called passive investing. The idea is that it’s smarter to invest across the entire market and then not pay attention to it, than it is to pick stocks or pay someone else to pick stocks. It’s easier and less expensive, and historically it’s been more successful. In fact, Warren Buffett made a $1 million wager that passive investing would beat hedge funds—and he was right. It’s why he advises his heirs to invest passively with their money.
“George Soros said that good investing should be boring. The largely male hobbyist investors who analyse, fiddle, tweak and take punts are generally doing less well than someone adopting a much cheaper, less complex approach,”