30 Nov No Pain No Gain in Investments – But Some Pains Are More Deserving Than Others
“The truth is, everyone is going to hurt you. You just got to find the ones worth suffering for.” ~ Bob Marley
What wise words from Bob Marley. We cannot run away from the pains in life as we pursue things we want in life. Risk and reward. Pains and gains. They all come hand-in-hand and you cannot have one without the other.
I would like to rephrase the Bob Marley’s quote to “The truth is, investing is a game that is going to hurt you. You just got to find the investments worth suffering for.”
We all want to grow our money without us working for it. We are convinced by the good of compounding effect on our money. But we want the gains and not the pains. If we agree that we have to bear the pains in exchange for the gains, will you still be willing to do it?
We will explore the pains which you have to endure. Also, we want to know if the investments worthwhile for the amount of pain you are going to endure. We shall start off with the undeserving pains first.
#1 Undeserving Pain – Scams
Investors are often lured into high potential returns investments. The returns are so high that we convinced ourselves that the risks are inconsequential. This is the reason scams exist. The greatest pain comes about when we discovered we have been conned all these while and the scam artist ran away with the money. Such pains are definitely not worth enduring for.
#2 Undeserving Pain – Useless Tips
We are busy people working our socks off. The least we want to do is to do research on stocks when we are back home after a hard day’s work. One of the shortcuts is to listen to gurus to get stock tips. Since that guy has such a following, it makes sense to invest in what he says. Sadly, such tips usually end up unprofitable. Such pains are unnecessary because there are no accompanying rewards.
Now let’s look at the deserving pains…
#1 Deserving Pain – Disappointing Returns
Most of us invest or have invested in unit trusts. We put our faith in managers to do the job for us. More often than not, we experienced returns worse than the stock market indices. It is disappointing to know 10-20 years later that we are doing badly with our investments. If you want to invest in unit trusts, you must be willing to bear the pain when the funds underperform. But there is indeed a chance for you to find an excellent manager that would give you extraordinary returns over a long period of years. Yes, it is difficult to find another Warren Buffett.
#2 Deserving Pain – Volatility
An investment with large price fluctuations creates a lot of excitement and disappointment in investors. For example, investors are going to be more excited or disappointed in stocks than fixed deposits. Stocks are like wild partners, ecstatic in some days and bad mood in other days. Fixed deposits are like steady partners, dependable but boring. When choosing a partner, we intuitively know where they stand and whether we are willing to tolerate the emotional roller coaster ride. Similarly, stocks offer a greater return than fixed deposits but it is up to us if we want to bear a greater pain to invest in stocks.
#3 Deserving Pain – Learning and Research
No one is born with the skills and knowledge to invest. We need to learn and acquire the skills. Like any sport or activity, we need to go through the process to get the hang of it. It takes time and effort and not all of us have the appetite or interest to learn how to pick stocks. Even lesser number of us want to apply what we have learned and conduct research. These pains are necessary if we want to grow our money with the right stocks.
#4 Deserving Pain – Mis-Timing
We time the market because we want to avoid the great stock market crash, or even take advantage by shorting. However, we are subjected to mis-timing the market time to time, regardless how good you are as an investor or a trader. Sometimes we buy too late and the price goes down. Sometimes we sell too early and discovered that the stock price doubled. These mis-timings throw disappointments and frustrations in us. Investors and traders who are willing to bear these pains stand a chance to be profitable. Hence, ask yourself if you are willing to suffer timing the market.
#5 Deserving Pain – Waiting
Buy and hold investing is a slow waiting game. Waiting has its pains too. Especially when our friends are making quick bucks here and there from the stocks. We looked like fools holding onto stocks that do not move up in price. Undeniably, we quietly ponder when we can finally take our profits. Such pains are worth enduring because those excellent stocks we invested in can go up several folds over a long period of time. We just have to suffer during the long journey.