Smooth Sailing Into Investment Journey
Herman is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Anger, disgust, feeling low, feeling high, confusion, and excitement are the most typical feelings that most investors experience. Is there any alternative to this madness? Does one's investment journey have to be that hard?
An investment journey is like driving a car. We can choose to drive crazy and be always worried about the police catching us or we can choose to drive calmly, put the car on cruise control, listen to great music along the way, sip that wonderful latte and have fun along the way. It’s a matter of choice.
From my personal investment journey, not many people that I interacted with survive the raging sea of investment world. Even if we manage to cross the ocean, many end up exhausted.
Personally speaking, I have been through both sides of the aisles. I can only tell from experience that definitely smooth sailing is much better than the raging sailing in investment world. Smooth sailing gives us a sense of peace, confidence and hope of the future. Smooth sailing gives the utmost emotional bandwidth so that we can maneuver around the raging sea. It enables us to profit strategically rather than in panic. All in all, smooth sailing gives us sense of satisfaction, fun and fulfillment regardless whether we gain much or moderate.
What does it take then to sail enjoyably into our investment journey? Have you ever considered the followings: don’t compare, have a plan, know yourself, and remember the endgame?
1. Don’t compare
For every rich person, there is always a richer person. For every poor person, there is always a poorer person. We have been trained through our education or work place system to always compare and compete with other people. Comparing ourselves with other people especially financially will only cause bruises. This is counter productive.
While comparison has definitely good side, one must remember that there are two aspects of comparison: intellectual and emotional. Much like cholesterol (good cholesterol vs. bad cholesterol), I think it is advisable to avoid the emotional comparison (the bad cholesterol) and concentrate more on the intellectual comparison (the good cholesterol).
The intellectual comparison will help us to see if we can learn from other people in improving our investing skill. The emotional comparison will have the tendency to see if we can make more money/return than other people so that we can feel good about ourselves. The flip side of this is that during season of life when other people make more money than us, we will have downcast situation that might kill our investment appetite and definitely sabotage our investment pleasure, journey and even result.
2. Have a plan
Financial plan does not have to complex. The most important thing as far as investment concerned is to know how much we save per year. It could be $5,000 per year, it could be $10,000 per year, or it could be $100,000 per year. The key thing here is to defend as much as possible that amount of saving per year or even better to increase it the best we know how.
Once we know how much we save per year, we can simply use the basic cash flow formula given certain investment return and time frame. For instance for $10,000 per year assuming 5% interest rate per year and 40 years, we’re seeing $10,000 *(1.05^40-1)/0.05 is about $1.2M. $1.2M is a lot of money for most people.
Some people might say $1M is too optimistic, but yet for some people $1M is too little. This is the place where we need to let go our own emotion and think critically: why we think $1M is too optimistic and why we think $1M is too little. Sometimes we need adjustment in term of spending expectation and perspective about happiness and lifestyle. Sometimes we need adjustment in term of improvement in our investment skill. This is the place where The Motley Fool is an excellent place to learn from.
3. Know yourself.
Smooth sailing requires us to know about ourselves both in term of personality and time. For instance, for those who rather have calm personality, most likely trading is not your thing in life. For those who have the tendency to be energetic, perhaps fast growth companies are yours. For those who have little time, buying stock index might be your best bet. For those who have plenty of time, buying individual stock is adventurous.
If you have plenty of time and have a calm personality, perhaps you might want to consider individual companies with strong long term competitive advantages and decent yield such as Intel (NASDAQ: INTC), Microsoft (NASDAQ: MSFT), AT&T (NYSE: T), Wells Fargo (NYSE: WFC), McDonald (NYSE: MCD), and Kinder Morgan Energy Partners (NYSE: KMP). On the other hand, if you’re energetic type, you might want to consider companies that have earning growth north of 15%/year and have good expansion plans such as Riverbed Technology (NASDAQ: RVBD), Baidu (NASDAQ: BIDU), Intuitive Surgical (NASDAQ: ISRG), 51job (NASDAQ: JOBS), Buffalo Wild Wings (NASDAQ: BWLD), and Chipotle Mexican Grill (NYSE: CMG).
For each type of personality and time availability, the likelihood is high that there is always a certain niche of investment market that can serve you well.
The Motley Fool is a good starting point to start this investment matching process between our personality and time availability vs. investment market niche. Visit http://www.fool.com/shop/newsletters/index.aspx to learn little bit more about investment market niche.
4. Remember the endgame.
For whatever weird reason, I always remind myself that in the end of the day, we all die. I know this might make some of you feel uncomfortable. Sorry about that, but you can change the word die to “old age” or something similar. The bottom line is that in the end of the day, the game of money is the game in the land of the living. When all is over, money won’t matter any more. So let’s keep it that way. It’s a fun game alright! But, it’s worth remembering that it’s just a game; and, as many people have discovered during the Great Recession, money is not the only thing in life.
All in all, money is part of life, but money is not the whole life. There are other components in life beyond money. There are other components in life that support happiness. Friends, let’s keep it that way! Have fun and have smooth sailing! Fool on!
Compare and Contrast
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Herman Theodorus has no positions in the stocks mentioned above. The Motley Fool owns shares of Baidu, Buffalo Wild Wings, Chipotle Mexican Grill, Intel, Intuitive Surgical, McDonald's, Microsoft, Riverbed Technology, and Wells Fargo & Company. Motley Fool newsletter services recommend 51job, Baidu, Buffalo Wild Wings, Chipotle Mexican Grill, Intel, Intuitive Surgical, McDonald's, Riverbed Technology, and Wells Fargo & Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.