Learning How To Surf The Investment Waves
This is a post from Jason at Islands of Investing. Enjoy!
Learning to surf the waves that life throws at us is a hugely important skill to leading a happy, fulfilling life. Some people spend all their time and energy doing everything they can to try stop the waves and make the ocean flat (i.e. complain about the way things are!). It’s a complete waste of time, but far worse, you’re probably making yourself pretty miserable in the process. And for all this effort, you’ll have made zero progress towards whatever you’re trying to achieve!
A far better approach, in life as well as investing, is to learn to surf the waves. If you’ve ever been surfing and caught a wave, you’ll know that amazing feeling when you’re ‘at one’ with the wave, working in harmony, floating towards the shore together. It’s a sensational place to be, and we can get there in all parts of our life – including the investment world. But try and fight it, stop it, or take it in another direction, and you’ll be thrown clear off your board.
The investment world has its own kind of waves. And this is one beach we can’t run away from if we want to achieve some of the dreams and goals we’re aspiring to for ourselves and our families – especially if early retirement or financial independence is the goal.
So what do the investment waves look like?
There are a huge number of things that you have absolutely no control over in the investment world. The economy. Tax rates. Natural and unnatural disasters that shake the investment world. New technologies that make existing industries redundant. Financial advisors who don’t have your best interests at heart. Stock prices. The actions of management of businesses you own shares in. The list goes on.
The only way to succeed (as well as keep your sanity!) is to focus on what you can control, and learn how to be your best when it comes to surfing those waves that come your way.
And fortunately, there are a huge number of things you can control. How much of your income you save. Where you put your money. How much planning and research you do for your investments. How you react to media headlines. Who you seek your advice from. Whether you stick to what you know, or take unnecessary risks.
Most importantly, you can learn to control your own behaviours and habits. Fear, greed, impatience, overconfidence – these are the things that can usually get us in the most trouble.
So with that in mind, here are some great surfing techniques that can help you ride the investment waves with confidence:
Strengthen your core for greater surfing stability (aka save hard!)
If you’re up to your neck in debt, and spending everything you earn, it’ll only take a little ripple in the water to send you flying off your board. The more of your income you can save, the better you’ll be able to handle any unexpected waves that come your way.
Choose the right part of the beach to surf at (aka invest in what’s right for you)
The worst thing you can do is head straight out to the deep end, get pounded by your first huge wave, and never want to surf again. Stick with what you know, and as your skills develop, find some more challenging waves if this help you achieve your goals. Don’t start out by using ‘butterfly spreads’ to trade options if you don’t even know what a stock is. You might get lucky and catch a great wave first time, but try to avoid getting overconfident and thinking you’re invincible – it’s more dangerous than you might think!
Plan in advance how you’ll handle those ‘once-a-decade’ freak waves
The stock market in particular is prone to huge waves that can come out of nowhere. But don’t waste your time worrying about it while you’re out surfing on a beautiful, sunny day. Do all this planning before you step into the water. For example, this might involve investing in a range of stable, high dividend paying stocks, which will keep sending you dividends regardless of the waves that come. It could be investing only what you can afford to lose, or making sure you don’t need to draw any income for 5, 10, or 15 years, so the waves won’t bother you. Or perhaps you’ll choose to pay no attention to the waves at all. But decide how you’ll react to those freakish waves before you invest.
Learn the fundamentals
Before you jump on a surfboard, you typically spend some time on the sand learning and practicing the basics. Making sure you understand some basic financial concepts, and the right behaviours and attitudes for investing, will make your early surfing attempts much safer and more enjoyable. But don’t be too afraid to dip your toe in the shallow end if you’re just getting started – after all, you only really learn once you get into it! There are plenty of fantastic books and materials out there to help get you going.
Don’t pay too much attention to the weather forecasts (aka don’t obsess over what the media says)
There is a constant stream of commentary and predictions in the media about what ‘the market’ is going to do, particularly in the short term. But unlike weather forecasts, they all pretty much end up being completely wrong. They are also usually much more negative than positive – you’ll hear a lot of reasons why you shouldn’t get out in the water today, because some huge waves are coming. These sorts of headlines draw more readers after all. Don’t waste much time and energy with this – make a plan that works for you, get out there, ride the waves that come your way, and know in the long run you’ll be far better off.
Avoid the crowds
Don’t get caught up trying to surf where everyone else is surfing. Investing is definitely one area where following the crowd rarely pays off. Crowds can go mad following each other, which is how bubbles are usually created – giant waves which eventually crash with devastating results. Have the strength to stick with what you know – like Warren Buffett did during the tech boom and bust in 2001 (his famous saying “Be fearful when others are greedy and greedy when others are fearful” also sums this up nicely). It’s really not much fun surfing at a crowded beach anyway.
If you can master the art of surfing investment waves, you can easily extend this to other parts of your life (just like I’ve had to learn to roll with the waves of being a new dad for nearly 2 years!).
So figure out where you want to go in life, learn the skills, behaviours and attitudes needed to surf the waves in your world, grab your board, and enjoy the ride!
Jason is the creator of the Islands of Investing blog, and despite surfing the investment waves for over 15 years, still struggles to stand up on a real surfboard! Islands of Investing is a quiet place, away from the constant noise of the investment world, where we focus on learning the more important things for becoming a better investor.
*The inspiration from this post’s title is based on a quote from Jon Kabat-Zinn, an expert on mindfulness meditation and its application to health and medicine. (http://www.goodreads.com/quotes/331826-you-can-t-stop-the-waves-but-you-can-learn-to)
Image:Wikipedia Commons/Evan Fa
Written By
It is a great analogy! Stock market went down the last fews days at the end of last week and I lost thousands of dollars. In the past I would have freaked. Now I don’t worry, and just ‘ride the waves’.
Thanks debt debs! Brilliant to hear you’ve developed this great attitude towards your investments! As long as your plan is still intact, and your prepared for whatever comes your way, then paying too much attention to short term ‘ripples’ and forecasts are a huge waste of positive energy. Thanks for sharing!