My Investing Worldview

worldview

21 Sep My Investing Worldview

Marketing guru Seth Godin defines a worldview as a person’s biases, beliefs and values. We each carry along with us our unique worldview. Our worldview determines how we interact with the world around us. It determines what ideas we choose to pay attention to and which ideas we choose to reject.

Our worldview determines how we invest. I promised to share some last week, so here goes. Here are the worldviews which I hold dear.

Investing is a sport. Retail investors are amateurs who are largely disadvantaged against the professionals.

In the very first article I wrote for BigFatPurse.com, slightly more than two years ago, I wrote about playing tennis with Roger Federer.

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As with all sporting endeavours, the more I train, the better I will become. If I am not prepared, the only outcome will be one of total decimation in the arena. Yet it never fails to amaze me how many people continue to think they can waltz in, pick up the next hottest tip, and beat the pros at their own game. Ask yourselves, having never ever swung a racket before, could you expect to beat Federer at tennis?

The truth is, we are all amateur sportsmen when it comes to investing. To be a world champion in any sporting endeavor requires dedicating a lifetime to perfecting your skill. Few retail investors are willing to give up family time, career progression and other leisure activities for that. Few investors are at that level. Yet, so many of us expect to pick up the hottest stock tip, waltz into the market and make a killing overnight.

It does not matter whether you are buying or selling a stock, a currency, a commodity or a bond. Chances are the party at the other end of the transaction is a bank, financial institution, or a government or even company insiders. In sporting terms they would be bigger, faster, stronger and a thousand times more athletic and skillful that you are. It is really not very difficult to pick who is going to come out ahead.

Yet, all is not lost. As retail investors we can choose the game we want to play. We can choose to operate in the arena that we have an advantage in. Investing passively in the STI ETF is one way. A well built Permanent Portfolio works very well for investors who are seeking less volatility. Finally, understand that funds and institutions do not invest in smaller cap stocks. Because they are so overlooked, they often present very good value if we know where to look.

We may not be the best tennis player in the world, but it does not mean that we cannot have a regular weekend game with our kakis and enjoy the benefits – the workout, the company, and of course, the joy of occasionally winning the game.

If we do not take care of our finances, someone else will

In another earlier article I wrote, I shared how a housing agent managed to deceive my friend into paying a higher price for an apartment. After the entire transaction is completed, we discovered that the owner of the property is none other than the agent herself.

On top of that, she led my friend to believe that she has embargoed higher offers from other co-broke agents because they would give her lesser commission. In any other occasion that might be possible but when we discovered it was her selling her own unit, the entire scam started to unravel in our minds. Now, deceive is a very strong word, but given the circumstances, I use it unreservedly for this agent.

Social scientists term it the ‘Agency Problem’. The interest of clients and agents working for them are not aligned. And that is how it is in the financial markets right now.

A property agent receives the bulk of his or her commission when you buy or sell. There is little incentive for them to seek out the best price for you. A financial advisor gets paid the most when you are buy the most expensive insurance coverage. A fund manager makes money primarily when the assets under management (AUM) of the fund increases, not when his fund outperforms the market.

I want to pre-empt objections upfront. I am not taking a swallow to make a summer and using the example of one bad sheep to taint the entire industry. It is not an issue of individuals. It is the underlying structural issue that makes the entire industry toxic.

Given the state of matters, I realize how important it is to arm myself with knowledge to navigate the financial minefields. I refuse to sit back and allow other people to run riot over something as important to me as my finances.

Financial freedom is a state of mind

During the Value Investing Mastery Course we conduct every month, Alvin would always share his story on how he quit his well paying job to pursue his passion and to grow BigFatPurse full time. It was a huge leap of faith, with many uncertainties along the way, the biggest of which is the lack of a stable income. Yet, to him, it was such an easy decision to make.

He shared that the decision was easy because he simply asked himself what he would do if money is not an issue. There is nothing else he would rather be doing than teaching, sharing and making a positive impact on people’s lives.

And because Alvin knows how to invest properly, he knows he is able to make his money work for him. He is confident that it will provide for him sufficiently at the end of the day. This confidence allows him to make more meaningful decisions that he otherwise could.

In the recent months, we invited many local finance bloggers to attend our course. (Hat tip to all you guys out there!) We chatted and got to know each other better. Along the way I discovered another not one but two other chaps have recently left their jobs to pursue what they really wanted to do. These are your ordinary man in the street making unconventional and brave decisions. The only thing that makes them stand out is how they have cracked the code of making money from the financial markets.

In stark contrast, I have many colleagues who bring home a quarter million dollars a year (wages alone, mind you). Yet they live in fear of making mistakes and losing their jobs. They complain about how difficult it is to maintain a reasonable standard of living in ever expensive Singapore. Despite them being so much better off, they are light years away from achieving a financially free state of mind.

Financial freedom allows you to pursue what you really want to do in life. Take a moment to imagine your lives free from money worries. What would you do? How would you live? Who would you be true to? That is financial freedom for you.

Share your worldview with us

Seth Godin suggests that there are thousands of unique worldviews. I just shared three of mine. Care to share some of yours?

image: matgilbert

 

 



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3 Comments
  • Createwealth8888
    Posted at 11:16h, 21 September Reply

    In the stock market, there is no such thing as amateurs; the moment we step into the stock market we are expected to be professional and against professionals who are waiting to take our money or we take theirs.

  • Richard Ng (Invest Openly)
    Posted at 12:36h, 21 September Reply

    Hi Jon, nice article! I am one of the privileged financial blogger attending the VIMC *wink*
    For me, Financial Freedom is important but maintaining an happy state of mind (read positiveness and optimism) is equally important. So, one of my worldview is that I hope to be able to emit more positive energy among the people I know (or soon to know) and live life positively (regardless whether we achieved Financial Freedom or not).

    Cheers!

  • My 15HWW
    Posted at 14:34h, 21 September Reply

    Hi Jon,

    Really good article! Enjoyed it.

    Anyway, am I one of those “brave” people you were talking about? Hope not since I definitely don’t think I have cracked the code of making money in the market. At most, I just got lucky for the past few years. ;p

    But I have to agree with you that financial freedom is more of a skill/state of mind which I hope I possess.

    The conventional view is that financial freedom is a stage where one’s passive income > expenses. Good knowing this definition but the essence is in applying that to one’ s own unique situation and life.

    And that mostly requires learning some skills or a paradigm shift in the way we think. Do we know how to increase passive income in a prudent and steady way? Or/and do we know how to reduce our current expenses?

    The market can be fickle and unforgiving. And I have to admit one has little influence on how the market behaves and the resulting impact on one’s portfolio.

    But if you possess the “right” state of mind and skill set, the market can only slightly delay your target of financial freedom. Financial freedom could become somewhat inevitable.

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