The world is awash with advice on how to use our life experiences to become better investors. Once you complete the sentence “Why investing is like…” in a Google search bar, you can learn how to improve your investing outcomes by applying your knowledge from tennis, snooker, poker or swimming, to mention but a few. However, can our investing experiences not also be a source of wisdom for other areas of our lives? It might be worth pausing to consider how past investments can help us to make better decisions in other aspects of our lives. For myself, here are a few of the things that I have learned:
1. Things change
The successful companies, industries and investment strategies of today are unlikely to remain so for long. Significantly, research has shown that profitable investment anomalies are quickly exploited and disappear within a few years after their discovery. Accepting that the best future investment returns are not dictated by the past, is what makes an investor successful. While it is extremely difficult to accurately predict turning points, expecting change to occur significantly improves your odds of doing so.
Similarly, expecting change in our everyday lives equips us to deal better with it. Small changes are less likely to disturb our equilibrium, enabling us to focus our energy on things that matter. Flexibility in our outlook ensures that we are able to spot the opportunities and not just the threats when change comes our way. When we budget for change in our circumstances and the people around us, it allows growth to take place, however uncomfortable it may feel at the start of the process.
2. Patience pays
One of the biggest bogeymen to avoid in investing is impatience. Rushing with the crowd into an investment can be unprofitable, even if the underlying company is sound. In the same way, the biggest investment mistake is often selling too soon. Sometimes playing a slower game can help you to spot the turning points better. In addition, getting it perfect matters less when you allow enough time to get it right.
This is a particular problem in a world that increasingly values instant satisfaction in all areas of our life. The consequence is that we fail to put enough time into things that bring long-term satisfaction, as these frequently require significant amounts of patience to develop. We give up too soon on learning the new programming skill (when we cannot crack it within two days) and sacrifice decades of career progression as a result. Our relationships bloom and shrivel long before we have time to properly identify whether we are dealing with a rose or a weed.
In life, as with investing, we are far more likely to make satisfactory choices if we assign enough time to making the decision. Thinking decisions through also means that we are more aware of the end goal and therefore less likely to give up too quickly on something truly worthwhile.
3. Make your own decisions
“Do your own research” is a phrase that we often hear in investing. It implies that you should not simply rely on the opinions of others when making investment decisions, but that you should gather enough information to make up your own mind. An automatic thought is that the lesson in here is to avoid listening to those who are unskilled or uninformed. However, a deeper lesson may be that we are more likely to deal with disappointment constructively when the cause was our own decisions.
In all areas of our life, advice is necessary and helpful. However, when you effectively allow others to make decisions for you, you assign responsibility to someone else. This can be responsibility for investment performance, but also responsibility for our happiness, health, job satisfaction and many other things. Unfortunately, it also means that we assign blame to others when we are not satisfied with the outcomes in our lives. This becomes a vicious cycle where we then assign responsibility to a new individual to manage our way out of the current mess.
By contrast, when we take responsibility for our own decisions, it is much easier to accept failure, learn a lesson and try to do better in the future. Ironically, the lesson may even be that we need to be more mindful of the advice of others! Nevertheless, when the decisions are ours it creates the possibility of making choices to actively change the situation for the better. When responsibility is assigned to others, you are far more likely to become resigned to dissatisfaction with your lot in life.
As wonderful as the wisdom contained within all of these lessons may be, I am the first to admit that I do not apply them as frequently as I should. The speed of life gets in the way and, as we focus on getting through the day, we forget the knowledge that we have garnered over the years. This makes it worthwhile to sometimes sit back for a moment and remind ourselves of past lessons. Like a student revising for an important test, spending time on what we already know ensures that these lessons are front of mind when the next test comes along.