Three Lessons for New Investors
Over the past year I’ve had many discussions with new investors and I’ve noticed some common patterns. As you embark on your investment journey, I want to share my key observations and insights with you. 👌
Usually new investors are too scared to invest because they lack the necessary knowledge to understand what they’re doing. So they look for an expert they can trust, but then they struggle to trust this expert, because they don’t know how to evaluate their performance. And because they can’t trust themselves or experts, they’re too scared to invest. Their fear makes them procrastinate, which ultimately gets them stuck, leading them to not invest at all! 🤔
I know it’s important for people to know what they’re doing before you take a big decision — especially with their money. But if they only start investing once they believe they have a thorough understanding of investing, they will never start.
So how can you make a good decision in this situation?
1) Resist risk aversion ✊: Study after study in Psychology show that people are risk averse. They prefer to protect what they have, rather than take a risk to gain something much greater. That’s why change is so hard — especially positive change. Change always means there is a risk of making something worse than it currently is, but we also know that change is the only way to improve on the current situation. Most people don’t invest because they’re scared to lose money. But most don’t realise that one is always an investor. If you don’t invest your money in companies, you are investing in cash or consumer goods — which will definitely lose value over time!
2) Get comfortable with uncertainty ☯️: Life is complicated and so is the market. No one can really predict the future, and there are no guarantees. So we need to be comfortable making mistakes, eg losing a bit of money, to learn and grow from our mistakes. Every investor will lose money, but patient and principled investors will very likely make much more than what they’ve put in. Try to get on that side of the equation. You don’t have to take excessive risk or be an expert to win, but you have to start somewhere and the best way to learn is by having some skin the game and getting involved.
3) Start with the basics 🍱: There is only a small number of things you need to understand, to make decent investment decisions. Learn about diversification, exponential growth, risk and asset classes (all of which I will write about in upcoming newsletters, don’t worry!). All advanced investment principles depend on these fundamental concepts. Also, don’t forget that investing is all about making predictions about the future value of companies, industries and trends. The best and easiest prediction you can make is that the market will grow, because people keep innovating and improving on the things that currently exist. You have lived long enough to have your own ideas on how the future will turn out. And investing can be a fun way to test your intuitions!
So get comfortable with your lack of knowledge and start somewhere, it’s your only way to learn and grow. Start with a reasonable amount of money and go in with measured expectations. Learn the basics and follow a strategy that matches your level of experience. Find out what kind of investor you are. This process can be fun.
After all, only those who dare, win! 🦁
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