My Little Secret to Be a Profitable Investor
The main objective of all investors is to be profitable. You can have a different time horizon or purpose, but making profits is at the core of investing.
Therefore, understanding the secret to be a profitable investor is perhaps the MOST important thing. Before I share my own little secret, I want to clarify that this WORKS for me, but it may not work for you. So think carefully before you follow it.
This is WAR
Investing has become such a popular topic these days. Back in the days, when I asked a room of students, “Who have been investing before attending my class?”, I would see just a few hands raised. These days, most of the students are already investing before they attend my class.
As people are more educated and rate of information flow increases, more people are becoming aware of the importance of investing. But very few achieve success in their investing journey.
Why? Because they don’t understand that this is not just a side hobby. It is a war.
This is not flying a kite or playing Clash of Clans. Investing is an EXPERT game. So remember that whenever you invest, on the other side of the table, you are playing against full-time professional analyst or money managers in big firms with almost infinite resources.
The odds are stacked against YOU!
How to Win?
The only way to win against a room full of professional investors is to DON’T PLAY WITH THEM.
Yes, you hear me right. The answer is “Don’t play with them“. More specifically, don’t play the same way as them.
Think of them as the Goliath, and you are David. David cannot beat Goliath in a fist fight but he won with a slingshot. Goliath was slow and clunky so David took advantage of it. David understood Goliath’s weakness.
What is the weakness of professional money managers?
They are investing with other people’s money.
Yes, that is their weakness. Since they are investing with other people’s money, and they have to answer to these investors.
What do investors hate? They hate to see losses, be it real loss or paper loss. If they see losses in their account, they will withdraw their money. Therefore, professional money managers are FORCED to take on as little volatility as possible while investing. They cannot withstand fluctuation in stock prices. They are constantly adjusting their portfolio to lower volatility, often at the expense of good profit. With the slightest change in news, they will shift their investments.
Look at the news above, last week CNBC is advising people to “think before selling”, now it is telling you “Everything is a trap”. How could both news be true at the same time?
And yet, this is the kind of environment that money managers have to live with.
How to be Profitable?
Therefore, if you want to make money from chasing the news and reduce volatility like the professional money managers, your odds of success is very low. You will be fighting Goliath at their own turf, you don’t have an edge.
As an individual investor, your edge is that you are investing your own money. You have permanent capital. No one can withdraw money from you! You have the ability to withstand volatility and no need to answer to anyone but yourself.
So my little secret to be a profitable investor is very simple.
Invest with your own money. Money that you can afford to keep invested for long time to come.
Just by having this small difference, you will have an edge over the money managers. Once you identify any undervalued investments, you could just buy and hold till profitability (there are other things you can do but if you are lazy, then just buy and hold). While you will definitely face volatility in the process, no one can force you to withdraw your investment at any time.
As Warren Buffett said it,
I knew I was going to be rich one day, without a doubt.
And he was right, it was just a matter of time.
