13 Life Lessons from Investing in Stocks
This year has been a really good one for the stock market. I was fortunate enough to enjoy solid returns, but I also made a few mistakes along the way.
I’d like to share with you the important lessons I’ve learned and how they apply to life in general.
These lessons are not new and some of them might be considered cliché. They may be common, but they’re easy to forget or ignore. So they’re worth emphasizing because they can profoundly impact how we live.
1- We can’t cheat time.
One might buy a stock that explodes and generates huge returns in a short period of time. But that’s a one-time deal. Sooner or later the same approach will result in bigger losses.
There are no shortcuts to achieving anything meaningful and lasting in life. We can rush action and try to accelerate results. And it may work for a short time, but not for the long haul.
The best approach is one that is methodical and focused on long-term growth.
2- We can’t eliminate risk.
Investing in high-risk stocks may generate awesome gains, but it can also result in massive losses—very quickly. The opposite is true for safer stocks.
Risk in investing cannot be completely eliminated, but it can be managed by diversifying (don’t put all your eggs in one basket) and by limiting exposure to speculative stocks.
The same applies to life. As long as we’re alive and breathing, anything (good or not so good) is possible. All we need to do is make the best decision we can, and get on with the business of living.
3- No one can predict the future.
No one can time the stock market with absolute certainty. There are trends and indications that can help in making decisions (which end up being right or wrong).
We may buy a stock that goes down in price, or sell one that goes up in price afterwards. Over time the price variance won’t matter much.
Life is the largest stock market; no one can predict what will happen, or when it will happen. We can focus on doing the best we can in this moment and allow time to compound our success and mitigate our mistakes.
4- Ignore the hype. Boring is good.
Historically, the best performing stocks have been value stocks that sound boring (think Proctor & Gamble for example). The well-established businesses, that have been around for years, don’t garner as much attention as the up and coming darlings of technology. Yet, they pay dividends and continue to grow slowly over time.
The new sexy stocks have more glamor than substance, and may or may not be around ten years from now.
We can ignore what’s fashionable, focus on what matters, and live an authentic life today and tomorrow—even if others think it’s dull.
5- Simple is good.
In investing they say invest in what you understand. If your strategy cannot be explained to a child, then it’s more complicated than it needs to be.
A simpler approach to life is more meaningful and enjoyable. When we untangle ourselves from the clutter and noise of distractions and unnecessary action, we can focus on the simple basics of a good life.
6- There are no free lunches.
Everything has a cost. Every action we take, or don’t take, has a consequence.
If you don’t invest, you won’t grow your money, and you’ll lose some money to inflation. And if you invest, you’ll grow your money, but risk losing some of it in the process.
In life, if you don’t act on something, you will forgo the rewards & risk of an opportunity, and you’ll bear the risk of staying put. On the other hand, if you act, you’ll l deal with consequences, desirable or otherwise.
It’s always helpful to keep the consequences in mind when we’re making decisions.
7- Indecision can be riskier, and more costly, than mistakes.
One of the biggest mistakes I made was to sit on the sidelines for too long (according to my own timeline) in the past. I lost quite a bit of money in 2008 and felt scared to get back in afterwards.
I researched and researched but couldn’t place an order. Then I reacted impulsively (thinking I was making up for lost time) and jumped into a couple of risky investments that added to my losses.
I would’ve been much better off if I invested consistently and let time and compounding do their magic, instead of fearing more market decline.
Indecision is not the same as not taking action. Sometimes we make a decision not to act, and that’s fine. We made a decision, and we’re done.
Indecision is not knowing whether to do something or not. It feeds doubts and mental struggles while pretending to protect us from making a mistake.
It’s better to make the wrong decision and move on than to make no decision at all.
8- Don’t get too attached.
One of the basic tenets of investing is not to fall in love with a stock. In other words, don’t let emotions cloud your judgment.
When a company’s fundamentals change, we need to cut our losses and sell. Then let go and invest the proceeds in something else.
In life we hold on to relationships that no longer matter. We refuse to change habits that do us more harm than good. We cling to a past that doesn’t serve us any more.
We view our habits, attitudes, relationships and memories as part of who we are, and we fear letting go, because we’re not sure what we will have left.
Letting go is an act of courage. The rewards, however, are worth the risk. When we let go of what was, we open up to the present and its possibilities.
9- Mistakes are inevitable.
Everyone makes mistakes. I don’t know of anyone who didn’t pick the wrong stock, or held on to a stock longer than they needed to, and suffered financially.
In everyday living we make mistakes, some of them might be quite costly. And that’s OK, as long as we do the best we can, and let go.
10- You’re the only one responsible for your own well-being.
You can rely on someone else to manage your money and investment portfolio. But they won’t care about your finances as much as you do. It’s your responsibility to either mange your finances, or do your due diligence and pick the right advisers for you.
We are all responsible for the life we live. We can’t expect others to take care of our needs, make us happy, or complete us. We can’t expect others to care about us more than we care about ourselves.
11- We’re always learning.
Experience is a wonderful teacher. We learn from mistakes and success alike. We learn also by actively reading and applying new material.
Investing, like any other area of life, continues to evolve. We learn from our own experiences. Also, we can leverage the experience of others who share their knowledge through books and courses.
Learning is an essential part of growth. We can meet new challenges with curiosity, instead of apprehension, and learn something new along the way.
12 - Talent and intelligence are overrated. Discipline and persistence are underrated.
We tend to think of successful people as talented geniuses. But the truth is most of them have average intelligence or abilities. What makes them stand out is their focus on what they want and their discipline to stick to it long enough to see results.
In investing, stock selection is not as important as it’s trumped up to be. Diversifying, having discipline to invest, committing to a long-term strategy, and minimizing costs are more important in the long run.
If you want to do anything, start now, and stick to it—without waiting till you’re fully prepared, or have the perfect tools. Refine your approach as you learn from your experience. Keep at it and you will grow and get results.
13- Trust in compounding.
This is the most valuable lesson of all. We can’t cheat time and take shortcuts, but we can work with time to grow slowly.
When you invest in a stock of a company that pays dividends, then you reinvest the dividends (buying more shares), your money will grow at an accelerated rate in the long run.
If you make one change today, you may not feel the effects of it right away. Keep going for a few years and the results will be remarkable. Small changes add up over time and they encourage other changes.
I hope you found the reminders above useful. As we head into the New Year, I wish you the best in everything you do. You deserve all the success in the world. You have within you all the power, intelligence, and ability to achieve anything you truly desire. Life is always on your side.