Get Rich Slow – Investing vs Speculating: Tim’s Top 10 Tips on How to Best Play Your Hand
The Roarin’ 20’s are back! Or are they? The Roaring Twenties was a period of economic growth and widespread prosperity, driven by recovery from wartime devastation and deferred spending, a boom in construction, and the rapid growth of consumer goods.
Today as we emerge from the aftermath of COVID-19 quarantines and shutdowns, everyone is tuned in to the frenzied markets. Stimulus money is juicing the stocks, and we are in what feels like a combination of a modern day “Golden Twenties” and a “Let’s stick it to the Fat Cats” meme. But where is this leading? How can you, as an investor, best play your hand?
These are some crazy times for both new and seasoned investors. Greed and fear always drive markets. But this time it feels different. We have weaponized social media, fueling the frenzy. Like never before, we have large online groups with the ability to take momentum trading to a whole new level (as we’ve recently seen ala GameStop). We also saw what goes up can also come down… quickly! Many did well early on with the recent Reddit vs Hedge fund tug of war. Those coming late to the party got hammered (as usual)!
So, what is investing vs speculating? How can you make your hard-earned money best work for you? How can you get the best return and guard your original investment from devastating losses?
Here are Tim’s Top 10 Tips on How to Best Play Your Hand
1. Know your “risk tolerance” level - Can you afford to lose some or all of your principal? If not, you are generally wise to skip more risky investments unless you have extenuating circumstances. For Example: Uncle Louie giving investment advice after 2 months of solid gains and a few losses is a risky investment, not an extenuating circumstance.
2. Study other models and wise investors - What are others you know, love and trust doing with their money? What investment strategies and models have they built that have stood the test of time? It is best to study other’s ways and stick your toes in the water slowly. Then build over time as your knowledge of money and markets improves. Play with fake money at first. See how you do.
3. Give yourself the “gift” of knowing you will not be proficient at first. Like everything new, it takes time to learn a new “game.” Go slowly into this. At first, be cautious and not overly aggressive as you find your own way.
4. Don’t buy into the hype of overblown markets – This one is tough when you see others making fantastic gains. (They often don’t tell you about their losses.) Usually, by the time you hear about a great investment that is the “new thing”, it’s rapid gains are peaking. At this point it is too late to invest and you’ll be the one left holding a losing hand.
5. Study cycles and know where we are on the Investment Clock – With investing, history repeats itself over and over again. Usually, when everyone is excited about investing, we are near the top. This is not a time to go “all in.” When everyone is fearful and running out of the market, this is the time to begin to get interested. The good news is you do not have to be the first to rush in. Best to sit back and let the game come to you. Warren Buffett, long time genius investor, once said, it is wise for investors to be “fearful when others are greedy, and greedy when others are fearful.” Meaning: When others are greedy, prices typically boil over, and one should be cautious not to overpay as that could lead to losses. When others are fearful, it may present a good value buying opportunity.
6. Be aggressively patient – This means you are always aggressively looking for great deals, real estate and/or undervalued companies in the stock market. Be patient and do your homework before jumping in. The wise investor is slow to act and quick to pull out of a bad investment when they see they were wrong on their assumptions. Measure twice, cut once comes to mind here. Don’t be afraid to be more upset you didn’t get in, than rushing in and finding out you now own a turd with all of it’s smelly mess.
7. Think long term with your investments. Investing is a “marathon not a sprint.” In today’s fast paced world everyone wants quick results. Investing doesn’t work that way. Hitting singles and doubles all day wins the game. Swinging for the fences gets you too many strikeouts, and that will lengthen your time to financial freedom, and it may end the game (for you) early. Take your time. Learn the models of what works for you, evolving as your knowledge and confidence in investing grows. Be a student of the game and a long-term thinker. This will serve you well as you will have fewer losses and bigger wins as you move forward with your investing.
8. Avoid betting the farm – Don’t spend or borrow money you do not have a way to make up if things don’t go your way. I’ve seen people refinance their house to bet on a “can’t miss” stock tip or other investment. Only to see it could and DID miss! Then they were out the money they borrowed and had a new loan payment they did not have before. This could be financially crippling and very discouraging. It’s wise to go smaller and risk leaving some potential gains on the table than going all in and getting fiscally spanked!
9. Learn from your mistakes – Even better, learn from others! This is why we ask seasoned investors their strategies and models. But when we do make mistakes, we learn from them. “It doesn’t happen twice” is the motto and thought process. Sure, we’ll make new mistakes. (Hopefully not biggins!) But we learn as we go and track our ups and downs, so we make fewer mistakes along our path to financial freedom.
10. Throw down the rope – Someday WE will be the ones that others come to for advice. As we learn and grow with our investing, we take others with us. We “throw down the rope” with our minds, models and especially profits. Yep, we gladly share our winnings with those less fortunate in life. We don’t give them fish; we use our resources to teach them how to fish.
I hope you enjoyed reading this and feel there are some useful nuggets here that can help you and those you love to become better investors. Please share this with your loved ones and mastermind friends on social media.