Friday, December 20th, 2019
When a person starts investing, it can be tempting to try and strike it rich in quick order. You might look for that get rich quick scheme or stock.
It might come by way of a stock “tip" or the latest investment fad. You might often hear friends and family brag of their latest can't miss “investment."
Patience and time are key when trying to make your investments grow for the long term, but sometimes it's hard to see when something is built only on hope. Here's how I came to change my approach to investing.
Early in my investment career, I invested in several promising stock picking opportunities. Yes, let's call them stock tips. There was the “can't miss" gold company recommended by a friend who worked as an analyst in the field. I invested several thousand dollars in that one.
If I check my account, and I like to leave my disasters in plain sight as helpful reminders, I see the value of that investment is now about $80.
Then there was the electric bus company that was selling buses to airports and cities around North America. That one has left no visible clues in my account; it went to zero. Poof, money gone, for good.
I was good at losing money in hot sectors too. In the early 2000s, we had the new internet-era stocks and tech sector funds. There was a lot of hope and promise, but no profit.
But this was can't miss stuff, right? This was the beginning of THE INTERNET.
Companies that were building out the internet couldn't make their products fast enough. Companies that were selling their products online had a massive instant customer base. Just start a website, sell your product or service.
Most tech start ups had very little revenue and almost all were losing money at a very fast rate. It did not end well. Some companies survived, but most did not survive the Dot-Com Bubble.
Over time, I noticed that my boring stuff was doing well. It wasn't going to make me rich in a hurry, but my broad market funds were going up over time. The difference? The funds were investing in the total market. I was investing in companies that were already profitable; they were already successful.
When you invest in an index fund that covers a country, you buy and own the most successful public companies in that country. You own the market, you own the drivers of the economy.
You're not investing in companies in the hope that they will one day make money. You're investing in companies that mostly do make money for you. And for my money, that is the big difference between investing and speculating.
I've watched my speculative dollars disappear.
Search for hot sectors and you'll get all kinds of suggestions. There are a lot of promising areas, but it's important to always be careful with your speculative dollars, and to not put all your eggs in one basket. Be careful with the amounts that you put into that “hope" bucket.
Successful long-term investing takes time and patience. It's not a get rich quick scheme. I learned sometimes it's good to be a little boring.
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