It’s that time of year again where we reflect on our successes as well as our not-so-successfuls… For many of us, this means that we review the areas of our activities that are the most important to us individually. To some, getting back in shape was their biggest resolution, or maybe it was to lose some weight, to eat more healthily, to exercise more or to learn a new skill. A hobby perhaps? How about an endeavor (hobby’s, more often than not, cost money). How about investing time and education in your investing skills? What if your resolution is to invest in greater skills and greater success?
To be successful in investing you need to do more than simply follow others ideas. Those ideas can be as simple as a recommendation from a TV celebrity, an investing newsletter or some “fence top talk” with your neighbor. When it comes to investing, those who do their homework, their “due diligence” outperform those who do not. As much as we’d all like investing to be quick and easy, the truth is that your success is directly related to your skill mastery. Skill mastery comes from education, guidance, and practice. “Education is the key to unlock the golden door of freedom.” — George Washington Carver. “An investment in knowledge pays the best interest.” — Benjamin Franklin. “The roots of education are bitter, the fruit is sweet.” — Aristotle.
Making investing a New Year’s resolution then really means that you are committed to improving your financial condition through education and therefore skill development. Along those same lines, there are several “sub-resolutions” that you might consider. For instance, you might resolve to not be influenced by what others say about a particular company or financial instrument. The only thoughts that matter to your investing are your own. However, those thoughts need to be well founded based on an awareness of the facts that are available to you. The most important principal of investing is that you must invest based on your personality and no one else’s. This is a principal that is commonly accepted in the world of art, but not so well known in the field of investing. Yet it is as true with investing as it is with music, canvas any other form of art. You must trade based on YOU and no one else. The lack of acceptance of this basic premise is why so many are drawn to investing services or newsletters which charge hefty fees only to abandon them later in frustration and lack of success. You must trade based on your knowledge and your skills. So, if you ARE to trade based on your skill set, which skill should you master? Let’s talk about that.
In the world of investing you have many choices. In fact, there are so many choices available to you that it can be quite overwhelming. Do you want to simply trade stocks and ETF’s (Exchange Traded Funds; A group of companies held together in a single fund, much like a Mutual Fund, but with some important differences), how about Futures? Commodities? Foreign Exchange? For me, the choice was simply: I was already trading equities, why not take it the next step and incorporate equity options into my skill set? That was a great choice for me; you’ll have to do a little exploration to find out what interests you… No matter what you choose, you’ll need the next resolution as well.
Resolution: this is going to take some time and effort on your part. A sad but true fact is that there is no wealth created in the marketplace. Rather it is simply a transfer from the weak hands to the strong (just like poker). Though the mainstream media would like you to believe that trading is so simple that even the class clown can do it. The truth is that those with the greatest skills do the best. That really shouldn’t be a surprise to anyone. That principal is true of all complex or highly rewarded fields. Medicine, law, professional artist, airline pilots, and successful investors all have invested the time and effort it takes to master their skill set. There is no get rich quick scheme that can provide you with consistent success throughout all types of markets that we will experience in our lifetimes. Which brings up another important resolution (I suppose you could call it a “sub-resolution”), we will resolve to be flexible in changing market times.
Though we have been in an extended bull market for a very long time, that WILL change at some point in the future. How will you trade then? Will you be prepared to adjust your trading style to match the current trend of the market? As an options trader, I can structure trades for any market. Bull, bear, stagnant or any shade in between, I can trade it. There are several advantages to that ability. The most obvious being that I can make money in any market direction. The less obvious benefit is that because of this ability, I do not have to search for the “right” stock or ETF continually. I can focus on just a few and trade them in any direction. That lessens my work load considerably AND allows me to become an “expert” on just a few companies. No more scans for me – just keep trading the same equities over and over. As a side note, have you ever considered why highly paid analysts only cover one or two companies? If it didn’t work, they wouldn’t do it.
The last sub-resolution that I will suggest that you incorporate into your New Year’s resolutions is that you seek out and embrace your own “edge” for investing. This breaks down into two areas: Your personal experiences and your well-developed skill set (education). Each of us has our particular strengths which have developed over our lifetimes. We are “experts” in something. Typically, it would come from your professional experiences in life, but it doesn’t have to. For me, as a 36-year professional pilot, it’s the airline industry. I know what makes the difference between profit and loss for an airline. I see it every day that I fly. That provides me with a distinct edge when trading companies like American Airlines (AAL), Delta Airlines (DAL) and others. I use this edge regularly and trade the airlines most. A colleague of mine is in the nuclear energy field – he trades energy-related equities. You may be an expert in the electronic gaming field, or cell phones or whatever. There is something about your experience and your focus that gives you an edge over others. The resolution here is for you to find it and embrace it. The other edge that I highlighted is education. This one is available to all. Get serious about it. It is THE most important investment that you can make. “If a man empties his purse into his head, no man can take it away from him.”- Ben Franklin. One last comment about education; yes, everything that is known is available on the web. The trouble is, the web isn’t organized as an educational process. Even if it were, we would STILL need guidance, mentorship, and support to become well educated. Why else do we still have “brick and mortar” educational institutions?
So, how then do we incorporate investing into our New Year’s resolutions? By recognizing the value of educating ourselves, resolving to the efforts required, by exploring our own edge that is unique to us and then making a plan to move forward. The benefits of doing so are significant and well worth the time and effort. In short, it is in your best interest to resolve that in 2018 you WILL develop your skill set as a knowledgeable and educated investor.