One of the worst investment questions you can ask someone starts with ‘What do you think of so and so investment?’
There are several golden rules to sound investing. These include:
- Cut your losers short, let your winners run.
- The trend is your friend until the bend at the end.
- Stay attached to an asset only for as long as it is paying you.
‘Ignoring opinions, including your own’ on the potential of an asset you are looking to invest in is also one of them. Yet if you find yourself in any number of the free Facebook, Whatsapp or broker groups created for private investors to ‘discuss’ the financial markets, this is one of the most common questions you will find.
This is a perfect example of how disconnected the world of the private investor has become from the underlying principles of creating a portfolio that performs even reasonably well, let alone one that will completely change your life and for generations that come after you.
What you will find in these groups is a complete loss in priorities. Ego and irrelevant social media clout come before profit. They can be black holes where the blind are leading the blind, where the misguided and the uneducated carve out niches and reputations as experts because, well, they can.
They are allowed to without being questioned about their credibility and their performance history.
‘What do you think of…?’ seems like a pretty harmless question, but these groups are a hazardous environment to be trusting total strangers with no track record with what is ultimately yours and your family’s future.
Investing is serious business. It requires a foundation built on knowledge and respect, both for yourself and the markets. Like any serious venture, there is a level of sophistication to investing that you must appreciate to see success. This is regularly overlooked and investing/trading, instead, are viewed as a get-rich-quick schemes.
There is also a culture of blindly following those who seem to have a solid grasp of the theory but again no results to back it up. Go onto Twitter and you will see a whole manner of ‘experts’ with significant followings pumping out tweet after tweet of the theory.
Ask for results, and very rarely will you get a response. It is extremely important to know the credibility of who you are following and not associate the number of followers they have with their ability to invest.
If they have terms like ‘day trading, scalping, swing trading’ in their profile, they are likely to be ‘theory gurus’ as opposed to competent investors.
Choosing to be in the wrong environment will be an immense waste of time, energy, money and opportunities. The chances are, you may already be aware of this based on past experiences and have moved on to a more professional approach.
If so, well done. You now need to take that to the next stage using the techniques outlined in upcoming articles.
However, if you are not aware of this. to sum this up in a way that should hopefully drive home the message that these are environments you want to steer clear of, I have seen comments to the effect of ‘I don’t mind losing money as everyone in the group is losing money’ or ‘I am relieved I am not the only one losing money’.
These comments gather an insane amount of likes and interaction prevalent with the meme culture. That immature and unsophisticated herd mentality will only leave people with regret when the doors of death start creaking open.
So how do you protect yourself from this? The answer is, of course, financial literacy.
- Lesson 1 – Save at least £10k to £20k to give yourself a solid foundation to build from. This may require sacrifices at first but as you earn more and save more, the balance of the ‘having a life/saving money’ dynamic tilts in your favour.
- Lesson 2 – Looking at charts as a trader does but holding positions for extended periods as an investor does is the most complete approach for us as everyday people.
- Lesson 3 – Protect yourself from misguided and ill-informed opinions by becoming financially literate.