Hazelle
in Memos & Musings · 8 min read
Other than attempting to grow our money much better than the inflation rate, the next most important aspect of investing if you ask me, would be to be able to do so in a joyful manner. Investing is a marathon and if you do not appreciate or enjoy what you are doing in between, it is hardly possible to finish through it.
Investors often get inexorably drawn to the overwhelming, garish parade of financial news. Fragments of market news reports will constantly intrude our reality and carve up our attention into tiny bits. Investors got to be able to slowly detach their decision making process from the constant stream of news.
Look, I’m not asking any investor to ignore any news. Devoting some time to learn about the latest developments in the financial markets is actually a good thing. But the point about reading such news is not to affect the way we invest but rather to be kept up to date and from there on, to formulate our own analysis. The problem is that most retail investors will react in a manner that is detrimental to their portfolio after being exposed to these market noises. Certain events can be overplayed or downplayed which skews our sense of what is going to happen to our portfolio. Sometimes it can be said that news to the investor can be what sugar is to the body. It is easily digestible but extremely damaging.
Over the years, the more experience I have as an investor, the less time I spend on reading the news. There is nothing “that important” an investor needs to worry about missing out. Because if it was something big, it won’t be long that you’ll be able to find out somewhat from your social media newsfeed or from your friends.
For the most part, information that we have on the day when something takes place is often raw and inadequate. What matters more is the context and consideration to which it affects our portfolio over the longer term. As investors, what we need is clearer thinking, more valuable insights and perhaps more time to rest. This is also what we believe in and provide to our public Telegram channel at The Joyful Investors. We share some of the more relevant ongoing news which are nothing but dots and then we make the effort to connect them and solve the puzzle for our community.
It was Warren Buffett who came up with the term “circle of competence”. Anything that is within the circle is defined as our area of expertise or strength while anything that falls outside the circle are things that we have little idea about. Buffett’s advice is to stick to our circle of competence and everything that’s outside of it is best ignored. For example, someone who has been doing well as a value investor should not suddenly attempt to try to be a successful crypto trader.
Why this works is because by focusing on our core competency, we stand to have a comparative advantage over most people by playing to our strengths. The more knowledge and ability we have within our niche, the greater the probability of success. This is like Pareto’s Law where 80% of the success in any area is enjoyed by the top 20% of the best people. And it cannot be more true in the financial markets where the majority of the money is made by a smaller group of investors who possess a sustainable competitive edge against other market participants.
That said, this point is not to ask you to simply stick to what you have been doing and learn nothing further. Over the course of your investing journey, your circle of competence can and should potentially widen. You may have been experienced in value investing and are now looking into how to leverage on options strategies to help you in becoming an even better value investor. The trick is to take calibrated steps when expanding your circle of competence, so that you can continue to win most of the new games that you decide to play in.
One of our favorite quotes that we constantly remind ourselves of comes from Benjamin Graham – “In the short run, the market is a voting machine. In the long run, it is a weighing machine.” What this means is that in the long run, the stock prices will reflect what a stock is worth but in the short run, it can be pretty much over or under priced based on the market sentiment.
The price of a stock at any point in time, is nothing but a result of the collective opinion of the market participants in the stock market which is constantly in a complex, dynamic process of chaos. Cause and effect doesn’t happen in a linear fashion and for the most part, the interplay of several causes results in a particular event.
Yet, any particular price movement is often attributed to just one or a few reasons. The financial media knows that our brains love to be able to make sense out of things as quickly as possible. We often (always) see headlines like: ‘The market fell by 3% because of X’ or ‘The stock rose by 2% because of Y and Z’.
Most of the time, the financial media are simply finding justifications to why the price moved. In hindsight, it looks easy to explain why a market or stock moved in a particular direction because of the given reasons. Here is one example we shared before with our community.
As an investor, you only need to know that the most important thing that affects the stock price in the long term is the earnings power. Your job is simply to possess the ability to assess if a company is able to remain fundamentally sound and not to be able to explain the daily or weekly gyrations of the stock prices which no one has control over. Refrain from having the temptation to want to find out or explain why prices go up or down. The time that you spend doing so could be much better spent in for example, performing technical analysis to understand the buying and selling pressure of the market if the stock is overbought or oversold.
No doubt it may take a degree of effort to take these mental steps that I shared. For many years, I have been practicing what I preach in this article and I find that the quality of my life as an investor has been wonderful and is genuinely helpful in my decision making process.
About Hazelle
Chief trainer of The Moneyball Investors Playbook program and founder of The Joyful Investors, a financial education firm that seeks to help avid investors learn to invest better and make the journey a joyful one. I graduated with a first class honors in Bachelor of Accountancy from Nanyang Technological University (NTU) and started my auditing career in one of the Big Four. I believe that once we know how to build our wealth sustainably, we can then live our best lives ever.
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