The difficulties of investing

The most difficult part of investing is the fact that repeating the same thing in different times will end up with different results. That is both frustrating and difficulty to correct. Imagine you are trying to learn how to ride a bicycle. You do an action and immediately you can see the results, hence the learning cycle is reduced. You practically learn how to cycle by trial and error alone. But in investing, the duration that transpired between the action and the results could be a few years apart. If you invest in this company, it's only after a period of time, ranging from a few months to a few years, before you can see the fruits of the action that you sowed. This makes correcting for error in methodology extremely difficult and makes the learning curve steep and treacherous. Do you really want to invest in a company and realizing that it is a dud after a few years, thinking throughout the entire holding period that you need time for the fruits to mature?

The learning curve to ride a bicycle is shorter because of the immediate feedback

This reminds me of an example. Some of the schools that my students are studying in do not have the habit of giving back the test results back to the students. In doing so, the students are deprived of a chance to learn from their mistakes. In other words, they can be doing a thousand tests and still not learn what is right or wrong since they have no feedback mechanism that can enlighten them otherwise. Likewise, investing now and knowing the results after a prolonged period of time can make the learning curve in investing necessarily steep and long. In investing, it helps to be a good student of history, because while circumstances vary, the human emotions that interplay between buyer and seller stays constant. All the panicky market crashes and euphoric bubbles are there for all of us to see, but not all will look at it to learn.




Throughout the whole market cycle, there are times when its profitable to trade, time to invest and a time to gun for yield. I think the key question is when to do which method, in order to get the best out of the current market conditions. In this aspect, I think Anthony Bolton's approach of doing different things at different times is very enlightening. I find his approach well balanced and not siding with either extremes of doing only trading or only investing. You can read more about him in his book "Investing against the tide". That being said, to really learn this, it'll take several market cycles of bull and bear before one can confidently say that one can do it well. To do this well, you have to learn different methods of playing the market and to know the right time to do each method. Difficult?

I quite like this book - it gives a very balanced view of investing vs trading

I offer an alternative that may prove tempting instead of learning how to juggle so many things in one market cycle. You can be a specialist, focusing all your attention to one single trick. You read up, you research, you practice all the time for that one single trick. If the conditions are not right, you wait as patiently as a fisherman with your calm facade suppressing the eagerness to hook a fish. Once the right conditions appear, you strike out using all the training that you've been prepared for. The hardest part of this alternative is to sit on the sideline waiting to do your single powerful trick and waiting patiently in the meantime. It is not easy doing nothing and believing that it will help you get more out of the market.




Then know this, it is even harder doing nothing when people all around you are shouting for action and making profits from the market, while you are doing nothing and believing that the right conditions for your trick is not here yet. Who ever says investing is easy?



*This article is contributed to IM$avvy financial portal, which is managed by Central Provident Fund Board and supported by MoneySense. This site has a noble aim of promoting financial literacy to the general population.