This is a guest post from Troy over at MarketHistory.org.
Troy blogs about his thoughts on the stock market and investing.
What my first girlfriend taught me about investing
I dated my first girlfriend back in highschool where we met through the track and field team. Our team trained 4x a week during the track season and we’d often work out at the gym together, so we meshed pretty well at first.
Long story short, we broke up a little after a year for several reasons. These lessons are transferable to the world of finance and investing.
The fundamental problem between my girlfriend at the time and I was that our personalities were just way too different.
She was your classic party-every-weekend high school girl who’d go out once a week on a fake ID. Although I was an outgoing guy, my extroversion was really only channeled towards sports and adventures.
Whereas she was a pure extrovert, I had a strong introverted side to me. I studied a lot and enjoyed reading historical books in my downtime.
A similar concept applies to investors. You need to make sure that your investment style and the markets you invest in match your personality. Otherwise, your portfolio will get wrecked one day.
Some people just can’t sit down and be patient. They always have to be doing something. For these people, a long term dividend investing approach is terrible.
The individual will sell his stock the moment it goes down, only to watch the stock reverse and soar. These people should be traders.
Successful real estate investors really need to be outgoing. There is so much about a property that an agent won’t tell you and it is up to you to do your own research. Drive around the neighborhood and check out the area. Talk to neighbors in the area to get a real feel of what the neighborhood is like.
Effort = reward
I’m going to be honest. The main reason I liked her is because she was hot and athletic. That’s pretty natural for a teenage boy.
Since I didn’t really like her that much, I didn’t spend that as time with her as I should have. Instead, my time was spent either studying or training for the 100m and 200m races.
Likewise, the more time you put into your investments and research the better your returns will be in the long term.
There is no such thing as get rich easy. Even “passive” dividend investors spend a lot of time finding the best dividend stocks.
Nothing is truly “passive”. Money doesn’t fall from the sky.
Read as many investment how-to books as you can and follow the financial news every day.
Learn the popular strategies that other investors use and morph their strategies into one that you can use.
You need to diversify a little bit, but not too much
I had an intense schedule throughout highschool.
I did IB, which meant that my workload was a lot heavier than most students. In addition, I trained 4x a week during the season and worked out 3x at the gym each week.
As you can guess, I didn’t have a lot of friends because I simply didn’t have enough time to socialize.
The breakup was kind of tough because aside from my gf at the time, I didn’t really hang out with anyone. Looking back, I should have made more friends and not “put all my eggs in one basket”.
Diversification is all about a fine balance.
Diversifying a little means that you will significantly reduce your investment risk. But if you diversify too much, your investment decisions will be sloppy and poorly thought out because you can’t enough effort/attention into the primary market that you’re investing in.
There will be signs to abandon ship
Unlike some couples, our relationship didn’t end in a contentious breakup.
There was no big fight. It just fizzled out in the end after drifting apart for a while. There were signs along the way. We spent less and less time together. She missed my birthday party but I wasn’t upset.
For investors, no sound investment ever turns into a losing investment straight away.
There will be signs along the way because the market doesn’t reverse and crash in 1 day. If you focus on just 1 or 2 markets hard enough, you will pick up on what those signs are.
For example, I primarily invest in leveraged ETF’s for the S&P 500.
The S&P 500 does not turn from a bull market to a bear market for no reason. It’s a long process that offers savvy investors many clues.
The U.S. economy must first deteriorate significantly before a bear market can begin. That’s why I focus on the state of the economy so intensely.