Investing doesn’t have to be complicated. In fact, you don’t need anything more than a few key principles. Let me share five simple ones that can help you up your game immediately, offers Keith Fitz-Gerald, editor of 5 with Fitz.
We live in an information-addled world dominated by a click-driven, 24x7 sensationalist-motivated news cycle where the pressure to be connected is intense. The temptation is to focus on the minutiae. Learning to “zoom out” is far more critical.
Most investors fail, despite having the best intentions, for one simple reason...because they lack the long-term perspective needed to navigate short-term market disruptions.
Learning to build a framework of your own can make all the difference. I know. It did for me.
Years ago, I was a newbie investor trying to make sense of the markets. Like many people in the early ‘80s, I found it hard to come to grips with the collapse of the Soviet Union, runaway inflation, a recession, oil deregulation, etc. when it came to my money.
The devastating headlines led some very smart people to conclude that the economic woes were insurmountable, and investing was not worth the risk.
My grandmother, Virginia “Mimi” Gruner, didn’t see things that way.
A self-taught investor, widowed at a young age and left with a tiny life insurance settlement, she was making thousands of dollars a month at a time when that was inconceivable, and her portfolio was doing exceptionally well.
I asked Mimi how she was doing that. What was she buying?
She told me, and my understanding of how markets worked changed overnight.
What did Mimi say?
Was it about which companies to buy? Cutting risk? Finding undiscovered stocks?
Looking across the dining room table, Mimi simply said, “People want to believe the world is going to hell in a handbasket.”
That was a major “A-ha!” moment for me. Suddenly, I understood why most investors can’t buy low and sell high, why they try to time the markets (even though that almost never works), and why they can’t remove emotion from the equation, which is the single biggest thing standing between them and the profits they crave.
Now, here are the other five principles I promised to share:
1. Capital is a creative force and the foundation of wealth
2. The markets have an upward bias over time
3. Technology increases total market size every time, in every industry
4. Profits follow innovation
5. Disruption crosses all economic strata
Pessimists want everybody to fail whereas optimists want even pessimists to succeed. That’s why disruption—and disruptive technology, in particular—is so powerful and able to overcome even the worst pessimism. Especially now that AI is on the loose.
Let’s finish with a simple, hard truth...
The world we live in today isn’t the one we used to live in; the relentless news cycle has hardened our outlook and, in the process, probably made all of us more skeptical than we’d like to admit. Learning to flip that around can be a source of tremendous strength—both in life and in the financial markets.