It's New Year. Again. And this time I decided to give some unsolicited advise. It surprises me how people get conned by the so-called experts in the field of investments. They are advisors, bloggers, talking-heads, money managers, and so forth. But all of them are creeps, who are to be detested vehemently. Alas, people don't; and they get boondoggled.
All this could be avoided if investors showed some restraint. It's much more behavioral than you think it is. So then, here's my gratuitous.
Behave
Investing is simple, but not an easy operation. Most fail to earn decent returns on a consistent basis because of their behavior. If you learn to control greed, fear, and envy, it will do a lot of good for you both in life in general and investing in particular. This is my investing 101. Learn it, and follow it.
Investing is a business
If you do have time and interest in learning about investing and alternative opportunities, it's a good thing. You can then pick stocks (or bonds) based upon their merits, and make money. You do not need anybody's advice. Don't go looking for it; everybody's advice is incentivized. There are loads of good information online that is freely available; use it. In addition, there are a number of books that can teach you about financial markets bubbles and busts, human behavior, pricing and valuation of securities, investor biographies. And even some text books can be of help if needed. Investing becomes a business operation, where you spend most hours of the day reading financial statements, management call transcripts, and thinking about investing. You are fully occupied with reading and observing most of the time. You engage yourself with analysis and valuation. You compare your value with market prices. And you choose only a few occasions when you have to strike, i.e. buy or sell. Once done, you are back again to your work. Your transactions costs are minimal as you do very few. You are willing to wait until market prices move towards your preference. You buy high quality stocks and hold them for a very long time. For other stocks, generally, your investment horizon is between one to three years, when you will be able to realize your profits. Sometimes, however, markets will be kind enough to offer you opportunities to buy and exit as quick as possible. You are always aware that prices you pay impact your returns greatly. Overall, this investing business will keep you knowledgeable about businesses and markets, and supply with you with opportunities to make decent returns for a long time. It's a business to be run as long as you wish to run; there's no retirement age. Isn't that great? Above all, you will have loads of fun, because your operation involves low-risk, low-stress situations. You are long, not short.
Index investing
If you are not inclined towards investing, or if you do not have time for it, it's not a tragedy. Only that you won't get to pick stocks (or bonds) on your own. You simply have to stick to work that interests you, and enjoy life. For long term investing, you have a superior option: just throw cash into low-cost index funds (broader index), month after month, year after year, for a long, long time. In a decade or two, the market value of investments is likely to be fairly high. The key is not to ask for anybody's advice. The key is to stick to systematic (fixed sum or fixed units) investing over a long period of time irrespective of market prices. You ignore money supply, liquidity, interest rates, production, employment, inflation, elections, and so forth. Of course, you read about them, but not act on them. Your job is to continue doing the work that you enjoy, and throw surplus cash into the index fund consistently. Just don't try to time the markets; no one has ever succeeded in it. Remember greed, fear, and envy. You should be satisfied with market returns, which should be fairly decent when you consider multiple decades. If someone gets richer than you, well, someone is always going to get richer than someone else; hello, envy?
Mutual funds
Usually, I don't recommend this, but if you must, and like some excitement, there is another choice. Pick a minimum of three and a maximum of five all-equity mutual funds to invest for the long run. Here's my advice: At least three different fund houses. Pick the ones that are reputable, low cost, and fairly large sized in terms of assets managed. If you find the fund managers, who have skin in the game, it is much better. You will very rarely find them; and that's why I abhor mutual funds.
If you pick three funds: One broader, not sectoral, index fund. One large-cap long term fund. And one mid-cap long term fund.
If you pick five funds: One broader, not sectoral, index fund. Two large-cap long term funds. One mid-cap long term fund. And one small-cap long term fund.
Throw more cash into the index fund and large-cap funds. Throw much less into the small-cap fund. You can even replace small-cap fund with another mid-cap fund, which is actually much better.
Once funds are selected, invest regularly over a long period of time irrespective of market prices and macro events.
Shun the media and experts
You really do not need anyone's help in doing this. Use common sense, control your behavior, and aim for a very long period. Investing is really for the long run. There are no short cuts to it. If anyone tries to give you advice, or otherwise tries to lure you (and there are plenty of them), mock them, for if they were really good at their game, they would not approach you; they could use their skills to invest their own cash and get rich. So ridicule them, and drive them away.
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