Fortune Watch

I am a bit of a gambler but am not the normal type of punter who you may see in the bookmakers on a Saturday afternoon. I am the kind of gambler who only likes to bet on what you might call a racing certainty. I love the thrill of all things to do with gambling but in my opinion there is nothing better than riding the stock market wave. What I mean by this is attempting to make money from investing in stocks and shares, trying to predict when to buy and sell etc. In this article I will write about the reasons why I believe more people should invest on the stock market.

Some people avoid the stock market because “it’s too risky.” But it can be riskier to not invest. If you put all your savings under your mattress, it probably won’t be enough to sustain you in retirement. If it’s all in a bank account earning 3% per year, on average, then that will barely keep up with inflation, at most. You can do better than that.

Many reasons for many people to do investments, one that can be very common to most of us is to make money. There are also personal reasons that you’ll want to start or join an investment club. You’ll finally have the opportunity to play the stock market in a safe environment that may be low risk and lets you learn more about a subject that greatly interests you.
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The soap company’s marketing head is taking the CEO through the plans for the new product launch. He shows the big boss two versions of the new soap, one that costs $10 and one $20. When the CEO asks, “What’s the difference?” the marketing whiz replies, “No difference, sir, some people like to pay ten, some like to pay twenty.” I was reminded of this ancient joke while I was talking to an acquaintance of mine whose job it is to sell investment products to very rich people in a part of the world that is exceptionally well-endowed with such people. My friend was extolling the virtues of ‘high-end’ portfolio management type of products, which I have never thought to be a good way to invest. “You don’t understand how the really rich think. They want exclusivity. These guys already have all the money they need – what they want is an investment product that is made specifically for them.”

This really struck a chord in mind, more so because, as it happens, I have with me a great deal of first-hand information about the performance of Portfolio Management Schemes. Over the last few months a lot of people have gotten in touch with me complaining about how they’re making less money in these schemes than they would have made had they invested even in average equity funds.

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Approximately eighty percent of our investors are male. But I am willing to bet that eighty percent of the most successful investors are women.I have read many stories and I began to wonder why is it that women tend to be better investors than men. I thought about it over and over, and I could not ignore the facts that women make more successful investors than men.

While this recent research shows that potentially women are naturally talented investors, many are still put off by the macho image of the stock market. Men tend to let their egos make their decisions for them. They hold when they should sell and vice versa. They buy in for fear of missing out on that one big opportunity. They refuse to ask questions or to ask for help in fear of looking silly.

In other words, men are more interested in looking strong, knowledgeable or successful than they are in making money. They invest not to get the best deal out of the market but invest so that they look good.

Women on the other hand, are much more likely to ask questions until they fully understand what they are learning, and they are usually more interested in the goal, (in this case making money) than they are in impressing the people around them.

This quality makes women great investors from all that I have read are that rather than investing according to what will make them look good, women will invest according to a plan—not according to what mood they are in or whether they will be “right” or “wrong”.

Investing is not about being right or wrong. It’s about making money. Women are able to put their egos aside in ways men have trouble doing. This ability to set their ego aside makes women great investors. Need proof?

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As a Financial Planner, I get emails from people who want investment advice. Much of this is not about comprehensive advice but rather; just single questions that are bothering people. This is very useful in my work because one can often spot interesting trends in the questions that people ask.

Over the last few months, I have noticed that an increasing number of people are worried about whether they are ‘managing’ their investments properly. Clearly, the idea is afoot that investments need to be managed. And the genesis of this idea is also clear from some of the email. Sometimes, people ask specifically whether the X investment management plan from Y Bank is better than the A plan from B Financial Services Company. Mind you, most of these are not what are normally called Portfolio Management Schemes. Instead, this is plain old fund sales; dressed up in a brand to look like customized investment management.

Earlier, someone from a fund distribution outfit would contact you, ask a few questions and sell you a bunch of funds, good or bad. Now, his actual actions will be the same but he’ll claim that your fund investments are being managed as part of his bank’s plan, which he claims better than the other bank’s plan.

Now, this branding does not do investors any real harm because it’s just a routine sales stunt of the kind that infests practically every product or service nowadays. However, I get the clear feeling that the kind of sales pitch that is given with these plans is leaving many investors with a certain anxiety. To sell funds dressed up as management plans, investors are told that managing investing is a very complicated activity that requires continuous management. Most investors swallow this line and then start worrying about whether they are managing their investments correctly.

In reality, investment management is an activity that can be as simple as you want it to be.

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There seems to be a school of thought around that the stock markets must run in such a way that the so-called retail investor must always make money and if he doesn’t, then there’s something wrong. Either the laws are inadequate or the markets are crooked, or preferably, both. The belief that the retail investor (formerly called the small investor) has a right to make profits no matter what he does is shared by some in the investment community, the media and in the government. There are frequent lamentations about the fact that the retail investor is not participating in the markets and various remedies are suggested (and some implemented) to correct this supposed anomaly.

Am I saying that no individual should invest directly in stocks at all? After all, expert investors too start out as individuals investing for themselves. The way it happens is that a large number of investors try their hand at the markets, usually when the markets are booming. As long as the markets stay strong they all make money, more or less.

This makes them confident so that when the bulls stop running, most of them lose heavily. Some, however, turn out to have the right mental make-up for this activity and go on to become experts. There is nothing wrong with this. Markets are inherently Darwinian by their nature that those who make the wrong choices will lose. For a market to function correctly, those who make the right choices must make money those who make the wrong choices must bear losses. If we see this as a problem and try and fix things, we will actually end up breaking them.

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Investing is so fascinating because it’s just as much about people and their emotions as it is about the raw numbers. Sure over the shorter period – and especially over the past 4 years – everyone’s an expert. It’s critical that ALL investors have a sound investment process.

It’s good to be confident, or so all of us were told when we were young. Confidence will make whatever you want achievable. So it must be very good that I’ve been meeting a lot of very confident investors these days. I met a man who started investing in stocks only three months ago and whose investments have returned more than 25 per cent during this period. That’s an annualized return of more than a 100 per cent a year, as he proudly-and accurately-informed me. Someone else I ran into started investing in February 2004 and have more than doubled his money. He has made a very confident projection that showed how fabulously rich he was likely to be in about five years’ time.

Of course, this is not just amateur hour-professional investors too are sounding like the gentlemen above. I met the marketing chief of a mutual fund company who had many megabytes of marvelously entertaining PowerPoint slides about how his fund managers had generated great returns over the last three years. I did ask him about what their returns had been like before that but the response I got made me feel that I had said something very rude.

Welcome to the land of investing geniuses, no one in this world has made any mistake on the stock market for as long as they can remember.

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Personally, I’ve never had much respect for the stock market. In fact, on some days, the news of the stock markets are the chief source of amusement that I and some colleagues of mine have. I hardly ever pay any attention to the Stock Indexes except when I am feeling bored. When I feel the need for some light relief, some of us open the day’s live Dow Jones graph on finance, point it out to each other and laugh heartily, as if it were some great joke. We never feel there’s anything strange about this behaviour except when we end up doing this in front of a visitor who, in turn, starts looking at us as if there is something strange about our behavior.

Now I know this sounds heretical coming from someone whose vocation appears to be linked to the stock market, but I really do feel that there is something funny about the daily curve of the stock market graph. Or more precisely, about the deep meaning that so many people are trying to derive from it.

Am I saying that the stock market is a meaningless circus then? No, far from it. The stock market, along with the stock prices of all listed companies and the levels of the various indices are extremely important to the countries and to many of us’ economic well-being. What is a meaningless circus is the minute-to-minute hyperventilate tracking of these things. Let me explain it this way. Tracking and predicting the weather is an important function but lying on the ground and trying to draw meaning from the changing shapes of clouds being chased by the wind is madness.

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Do you ever wonder where your spending money goes or how you can spend so much on practically nothing in so little time? In the old days people brought their paychecks to the bank, deposited most of the money and pocketed the rest in cash. The cash was supposed to last until the next check. If it didn’t, it was an obvious cue that too much money was being spent.

Fast-forward to these days when paychecks are deposited electronically and we stuff our pockets with debit and credit cards. Beaten-up dollar bills and heavy coins never dirty our hands. It’s so much nicer than the old days. Unfortunately, it makes it too easy to bust the budget.

Without that dwindling pile of cash it’s harder to recognize how much is being spent. Sure, you can log on and look at your bank account every day, but most people probably don’t. When they finally see their balance they think, “no way!” More than likely it’s not the mortgage that’s killing them; it’s the daily money drain. If that scenario fits your life, the seven-day money challenge may help you get on track.

Use this challenge to give yourself a wake-up call to those who don’t realize how much they’re spending. I ask some of my clients to guess to the best of their ability how much cash they’ll need for a week’s worth of spending. It’s just the day-to-day stuff like gas, groceries, going out for meals. The usual outcome is they’re out of money by Wednesday.”

Learn your weaknesses. “I was trying to go from Monday to Monday, I carried a little notebook and would write it down if I stopped for coffee or went to the drugstore. Wednesday night I went to buy gas and I didn’t have enough cash. I had to resort to my credit card to get me through the rest of the week. I was shocked and a little disappointed.” Thats what some of them say.

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It takes time, sacrifice and consistency to join the million-dollar club

Quit fantasizing about marrying a millionaire, winning the lottery or walking off with a TV-quiz-show jackpot. By making your money work harder and smarter now, you can become a millionaire by the time you’re ready to kick back and trade work for play.

There’s no magic involved in reaching the million-dollar mark. If you set goals, do the research and start investing now, you can hit your wealth-building target on schedule. And you don’t have to be a financial whiz! What are needed are time, sacrifice and consistency.

Time is most significant: The longer you invest, the smaller the amount you need to put away each month to reach $1,000,000. Thus the younger you are when you start investing; the younger you’ll be when you join the million-dollar club. Many of the estimated 8 million millionaires began investing in their teens, and always with a long-term goal. Let’s say you’re 28 years old now, with no money saved or invested and would like to have a million-dollar portfolio of investments by the time you turn 60. You will need to invest $300 a month in stocks or stock mutual funds that have at least an 11 percent annual rate of return. If you increase your monthly investment to $500, you’ll hit your mark by age 54.

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The other day I read about someone who claimed to have doubled his investments every month for more than a year now. If I do the math’s it turns out that this man must have multiplied his money to more than 4,000 times what it was. That’s 4,000 times, not 4,000 per cent. The interesting part is that not only do such people expect to be believed; there are those who believe them. If you ask a random collection of people whether they think it possible that somewhere in the world there exist investors who can go on doubling money every month, then you’ll get a surprising number of yeses. This sounds like believing in anything you hear.

No one who invests in the stock markets ever loses any money. Or at least, that’s what I will have to believe if I take at face value whatever someone says about their personal performance in managing their investments. I’m serious. It’s amazing, actually. The markets fall. Dubious stocks shoot up and people keep buying them and then when the markets fall and stagnate and no one admits to having lost any actual money. To be fair, there are some who admit to holding investments that are way under water from their purchase price, but claim that this is not a loss but a temporary dip.

That’s a point of view, I suppose. Not only does this undying faith in the existence of supernatural rates of return persist, it does a lot of real harm.

The refusal to admit to wrong investing decisions means that we miss the opportunity to learn from them. I know these sounds like a slogan from one of those motivational posters, but failure really is a very good teacher. Provided one makes the effort to learn from it.

And at least in the case of investments, it isn’t all that difficult to learn from bad investments. What one has to do is to honestly think of the reasons why one bought that investment and then resolve not to repeat that reason without any further refinements.

Let me illustrate with a couple of examples.

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