Investing is like learning; it’s a lifetime experience with successes and failures. But it’s worth living and its basics are worth studying.
By Amr Hussein Elalfy, MBA, CFA
4/29/19 8:23 PM
Every year around September/October timeframe and sometimes even earlier, the “Back to School” season revisits us, a reminder of a lifelong journey of learning. Well, we are not even close to that time this year yet, and summer is just about to kick off in our part of the world. Nonetheless, we highlight how continuous our learning journey needs to be. It will be an ever-evolving experience during our lifetime and will be a legacy long after our death! This holds true for kids going to school as much as it does for investors going to market. As long as we are alive, we will continue to add new experiences to our lifetime balance, be it successes or failures. Typically, success is synonymous with confidence and trust, while failure is associated with skepticism and distrust.
When investors make a successful investment decision, even if their knowledge of the subject matter is almost non-existent, they cannot help themselves but start trusting their instincts and quickly build up their confidence when making their next decision. I remember how confident I was after making my first-ever stock investment buying up shares in the company I loved and continue to love its products: Nike (NYSE: NKE). At that time, I had a folder filled with news and analysis about the company and its stock. I was very proud of my investment decision to buy into this successful company’s shares. “Hey, I am a shareholder now!,” I told myself back then. Lo and behold, the investment was worthwhile at the time, but ever since I had long sold my position. Had I kept my shares years later, I would have made much more profits. I had picked the right company and bought at the right time but sold early! In hindsight, this underscores the importance of time in the investment decision-making process. It is not just about the "what" (the investment), the "when" (the time of purchase), or the "how" (the price of purchase); it is also about when to sell.
Investing basics are, by definition, basic! However, more often than not, investors choose to neglect or find themselves overlooking those core basics. Investing is a life-long journey, similar to learning, but to excel in it, investors need to be well prepared. Over the next few weeks we will be laying out those investing basics, starting off with bank savings, passing through real estate, then stocks and bonds, and ending with an overall strategic plan for an average investor—someone who will presumably know nothing about investing to start with.