27 Feb Are you using the right tool to invest?
A few months ago, I fixed up some Ikea shelves for home. Now if you think Ikea is nothing but just cheap paper wooden furniture and groovy meatballs in gravy, think again. The real attraction, I swear, is the ability of the Swedes to put together an idiot proof instruction manual for their products so that a six year old can build his own bedroom. And when adults realize that they could actually build something bigger than themselves in as much time it takes for them to get to work on an unbroken MRT train, they get hooked so much and cannot wait to fill their entire house with Ikea. Case in point, a friend invited us over for steamboat and got a scant response. When he mentioned he had shelves to fix up and needed our help, everyone turned up on time. Ikea 1, Steamboat 0.
Anyway, back to my shelves. It was good fun putting everything together and watching the shelves take shape. Except that after a while, putting the screws in with nothing but a tiny Allen key started to get to me. My hands began to ache and the part of my first finger between the first and second joint turned as red as a blushing tomato. I started contorting my body and using muscles which I never realized existed to leverage and lessen the screwing effort. By the time I got to the last screw I was cursing at the Swedes and secretly celebrating their previous European and World Cup losses. Call me vindictive but look at the number of shelves at home and you would realize that there was some serious screwing going on that day.
Note to self: In the future, for anything more than four screws, I am getting professional help. Period.
And professional help we got. Settling into our new place, We realized (with some amount of small glee), that we needed something for the kid’s clothes. We trooped off to Ikea, loaded up on the shelves and blew fifteen bucks for professional help – an electric screwdriver. It includes a charger, ten screw heads and comes in a funky orange packaging. It even has a name to go along – Fixa; how cool is that! To hell with manual screwing, I am now ready to conquer the world.
But my world soon came crashing down on me. I got home and realized that despite the screwdriver being an Ikea offspring, and despite the four shelves ( x 6 screws on each side x 2 sides = 48 screws argh) being Ikea offsprings, and despite there being two screw heads for Allen screws, none of them were of the right size. What could have been an hour’s walk in the park turned out to be a massive struggle to complete the race. If Jack Neo were to make a movie out of it, it would have been called ‘Kena Snooked’. I was devastated. For doing that to me, I hope the Swedes never ever win the World Cup.
Then I had an epiphany. Ok, make it two. 1) A positive outcome could only be achieved by using the right tool for the job. 2) You need to know what you are fixing before you can choose the right tool for it.
In trading and investing, the instruments available to us are plentiful. Most if not all retail investors would have been exposed to equities. And everyone would have easy access to fixed deposit and unit trusts. Slightly more knowledgable investors would be interested in Exchange Traded Funds (ETFs) and perhaps commodities and bonds. Traders could specialize in Forex, Options, Futures and many other forms of sophisticated instruments. Then there are the exotics, art, wine, stamps, landbanking etc. And of course, properties, local or overseas, residential, commercial, industrial never fail to strike a chord with Singaporean investors.
And when I mention using the right tool, I also refer to the different types of trading methods. One could adopt a trend following philosophy or trade contrarian, one could swear by scalping pips to realize gains in minutes or embrace value investing and let time in the market compound the gains. One could opt to diversify and spread the risk, or one could put his or her eggs in one basket and watch it like a hawk.
The instruments and asset classes, the approaches and methodology, all of them are but tools that allow us to fix the shelf and make tons of money. And a positive outcome could only be achieved by using the right tool for the job.
I can have the swankiest electric screwdriver in the world, but if the screw bit doesn’t fit, it is as good as useless. In trading and investing, we can arm ourselves with the most sophisticated tools and platforms, trade the most exotic options using the most extreme technical indicators. We are always tuned into the news, searching for the edge to beat the market. We invest our time and money into attending courses and seminars in search for the next big investment payoff. But more often than not, we discount the most primal step; we fail to look within ourselves and question if the method and the instrument is indeed appropriate for ourselves.
As individuals we bring with us inherent differences to the market. We have our own preferences and quirks, we have different prior experiences. We have time frames, skill sets, abilities. We have different risk appetites, our own set of fears and constraints. We want to achieve different things from the market. Asking someone with a low risk appetite to trade a highly leveraged instrument like Forex will cause him many sleepless nights. A full time employee with little time to monitor markets might be better off passively investing in the Permanent Portfolio.
And as we remain fixated on the tool and always go for the one that promises us the highest returns, we often overlook the most important element of all – the shelf. Rather than seeing trading and investing as trying to fix the market, conceptualize it as trying to overcome yourself. You are the shelf! Know yourself and fix yourself up to be the best investor you can be first. Let the market run its course. You will find that you will end up with plenty of storage for whatever wealth that will come your way.
We are all as different as the shelves Ikea has to offer, and we all need to find the right tool to fix us up. Ending up with the wrong tool for your circumstances and personality and psychological make-up will be much more painful and costly than realizing that you have 48 screws to tackle, and no amount of cursing the Swedes would help.
Good luck in the search for your own unique tool!