My Investing Manifesto: 12 pillars of advice for new and beginner investors
This is my investing manifesto for beginner investors, and a preview of the book I am writing. I wrote this for the people who want to see themselves as future successful intelligent investors.
Background: Having been investing semi-professionally for a few years with moderate success (after some initial failures), I want to share my note for the young investors, as I have learned my fair share of the lesson, paid with real dollars (either in realized or unrealized gain/loss, or opportunity costs) and having had the bests as my mentors (Warren Buffett, Peter Lynch, Benjamin Graham… from reading over 20+ best investment books over the years, which taught me more than the 2 business university degree I got):
1. Think abundance:
there is money to be made everywhere in investing. Avoid the urge for FOMO, which is a pure scarcity mentality. what the FOMO is saying is that if you miss out on this one, you will never find another one like this. The truth is, although you may never be able to get 100x ROI within 12 months of investing in Ethereum, there is always the next “Ethereum”. The FOMO thing is easily said than done, we are humans and are all subject to it. However if you catch yourself the next time you have FOMO and become conscious of it, you already made one big step. Ultimately tho, for many people, you may only be cured from FOMO after having suffered a disastrous loss due to your FOMO, of which you learned the lesson the hard way.
2. The key to make money quickly is to not want to make money quickly.
There are some people who are against making money quickly, who say you should avoid “easy money”, I don’t believe that. Would you rather make over 50% annual return or 3% annual return (with a crappy mutual fund)? it’s a no brainer. But your focus should not be making fast money. Making quick money however could be the ultimate results of investing intelligently and smartly. If you set out the goal to make money quickly, now and only now, you are subject to strong emotions and neediness, which is a sure way to lose money quickly. Instead, focus on a set of systems, methodologies that enable you to make enormous returns over a long-period of time, which when calculated as “annual returns”, translate to huge returns (over 50% annually). which brings me to the next 2 points.
3. Think systems not luck:
Let me ask you this. Do you buy lotteries? If you do, stop buying it. The behaviour of buying lottery (which some people do so weekly and mistaken it as a system) is the perfect illustration for this point. You should welcome luck as they come, but never make it part of your money-making strategy. Remember, hope is not a strategy. Could you imagine a business like TSLA for example, tells you that we have no strategy for manufacturing, distribution or marketing. We just make the cars and hope people buy. Does that instill a lot of confidence? So do not focus on getting lucky on a “candle stick” or getting in on a “3-day pump”. Focus on the investment system and analyze all your investments the same way. An example would be “defining investment goals -> portfolio allocation -> sector selection -> screener with criteria -> short term technical analysis for entry point -> monitoring news, market, earning and other reports for performance -> rebalancing, adjusting and rotation”
- additional note on this: in investment groups, there are always people asking “how do I turn $1k into $10k fast” “whats the best penny stock” “what is the best stock under $5” “should I buy XYZ hottest stock of the month”, if you catch yourself doing this, you know you are not thinking like a gambler and not investor. If you ask “I bought XYZ at $180 now its down 50%, what should I do?”, it is clear that when you bought, you lacked the investment thesis, you were gambling, hoping for the best, and not thinking nor investing. Ultimately, stop asking “what should I buy?” that is the wrong question, start asking “how should I know what to buy”
4. Think long term not short term.
This is not just for stocks. Every hugely successful person thinks this way. Warren Buffett, Jeff Bezos, Elon Musk… With investing, it is even more critical. If you are young (under 30), your investment goal should be a 20-year goal, of which you do not evaluate your success or failure after the end of 1, 2, or 5 years but what you achieved after the end of 20 years. 600% ROI over 20 years is 30% annual return (noncompounding for the sake of example) is still much much much better than your average investor out there. If you are older, this one still applies, because thinking short term is a sure way to LOSE money. Here are 2 ways you can lose your money thinking short term:
1) you picked a winner, but in short term it didn't do well so you cut your losses.
2) you picked a loser, you got emotional because you need to make money now! so you sold it and picked another loser.
5. Drop your ego:
Does reading this post piss you off a little? Do you feel like “I already know this” “why should I listen to this kid talking” “I don't need this guy telling me what to do”. If you do, that’s your ego talking. We all have egos, some bigger than others. But on this investment journey, you need to learn to temporarily set it aside and ask yourself this question: “do I want my ego or do I want results?” Here are some things that could happen after you dropped your ego:
1) you become more open minded, and be able to listen more, absorb critical information and make better decision for yourself.
2) you become less attached to the ideas of “winning” on a particular stock, and more inclined to really win with results. For example, you would be able to overcome the insanity of holding onto the loser stock you made mistake buying, because “its not a loss until you sell”
If you have made it to this point. Congratulations. Here are a few more for you:
6. Define your investment goals, find your why and create actionable steps.
This is not “I want to make $200 a day” or “I want to make 20% a year”. This is a process of going inside yourself and asking a series of “why” questions. For example, “I want to make $30,000 more a year” WHY? “because I want to retire by 35” WHY? “because I enjoy the freedom of being with my kids” WHY? “because my parents never had enough time for me when I was a kid…” — In the process of doing this, you find out the meta outcome, a.k.a what drives you, now you become much more motivated because you are doing it because you want to be good parents for your kids. Second part of this is to create an action plan on how to get there. In this case, it could be more than just “making money” for example, why not set a time every Saturday from 4–7pm to play with your kids at the park, you accomplish the same meta outcome. If you want to set up an investment action plan, that’s a whole other post. But it basically consists of the following: 1) action step, 2) monitoring, 3) evaluation and adjustment
7. Fail fast and start small, but aim bigger:
“would you rather lose $50k when you are 23 or losing $50k when you are 55?” Fail fast, whatever investment or trading thing you want to do, do it now. You might think you are one of the few people on the planet who could make millions trading binary options, you should try it now and get it out of the way. I am an advocate for experienced based learning.
- Start small. if you are new to investing, you never want to put all your money into the market and especially into one stock at once, you might think you are an investment genius, or maybe you have read the top 50 investment books already and think you are Buffet Jr. or maybe you paper traded and made $500k in 3 months on a simulation account, here is the harsh truth: the first time you put money into the market, you are going to lose money. Theory, even paper trading cannot replace real money investing or trading. You need time and experience to build up your skill sets. (I once owned an algo trading firm and started with trading $10k into the market, when the algo figures things out and eventually was trading $200k daily into the market with a matured algo, but I digress). Remember once again, think long term not short term.
- Aim bigger: as a millennial, I think retiring at 60 only because that's when you can financially afford to, sucks. I think anyone with sound investment skills could do a lot better than that. So whatever investment goals you have now, you should go ahead and double that. For example, you want to make $10k a year investing, now its $20k a year. I am telling you that it is possible. I cannot tell you what your goals are, only you can. But remember to fail fast, start small and aim bigger.
8. Learn, and always learn, and never stops from learning.
There are 2 kinds of learning, both are essential if you want to succeed. One is learning from first hand experience, from trading or investing yourself, the key thing to remember here is this: There is no such thing as failure, only learning. You either win or you learn how to win. Losing $20k on an investment is a failure only if you were to focus on that particular moment of loss, but if the first-hand lessons you took with you enable you to make $200k in future investment, then it becomes a win.
- However losing money can be painful, even if it is for good learning. This is why you must also apply the second type of learning, that is, learning from second hand experience (from other’s experience). A few things about this type of learning.
Most beginner investors learn about stocks and investing from YouTube, and I said before that’s a formula for disasters.
Most “YouTube investment gurus” out there make more money making YouTube videos than from investing in stocks themselves. Aka. These people never have your best interest for you to learn and absorb information. Their interest is making you clicking and addicted to whatever reactive videos that sell. Just think which title sells better? “OMG OMG wish I bought this like TSLA” (usually accompanied with a click-bait surprise pikachu face thumbnail) or “fundamental analysis for BRK.B”
New and beginning investors should learn from people who have the results they are looking for, whose results can be independently verified. For the most part, I’d say books are an amazing resource. You know for a fact Benjamin Graham, Warren Buffett, Peter Lynch, Philip Fisher have the results you’d hope for yourself. Also, these books are what the “YouTube investment gurus” learned their skills from anyways, since most of them did not have any formal education in finance or business. As a learner, it is your job to choose the smart and best source to learn from. You lose money because a guru tells you to invest in a stock, it’s not his fault, it is your fault for listening from illegitimate source. One must differentiate real learning from entertainment disguised as learning (which is what YouTube mostly is). When in doubt, use your brain!
9. Surround yourself with money mindset:
This is like one of the most cliche thing you hear money mentors and gurus talk about. “you are the average of 5 people you spend most time with” “you gotta get your money mindset right”… however, there is great merit in this point. When I was younger, I once racked $10k on a monthly credit card bill and for a month, I refused to even look at the bank account because I was afraid what I was going to find… When you are with people who cannot talk money or uncomfortable with talking money, it is the same thing, realize these people are fearful of money, stocks and investment, they are scared because they don’t understand it, instead of trying to, they shy away from it. You need to seek out friends and influences who are comfortable talking about money, investment and such. This is why online communities such as Facebook Group, Twitter is great.
10. Investment vs. trading. vs. speculation.
For the entire post, I talked about the most important things when it comes to beginner investors, I did not talk about fundamental analysis, technical analysis, DCF, no investment specific like that. But there is one concept I need to mention here. To tell the difference between investment, trading and speculation. It is so important yet many people who have been “investing” for years don’t know the difference. In the purest form:
- Investment: putting your capital up front with the reasonable expectation of future cash flow in terms of dividend or capital gain. When it comes to the analysis process, you look at the fundamentals, including operations, financial information, revenue, sectors, competitors, everything. But you don’t look at the price of stock or the charts at all. In fact, you calculate a price of what you think the company is worth, and you compare it with the market. if being currently undervalued, you buy it. Otherwise, you sell. Within investing, there are sub branches like distressed asset, bonds investing…
- Trading: the most pure form of trading is technical trading, where you dont even look at the company at all, in fact, you don't even need to know its name, you only look at the price history or charts to make reasonable prediction about future price changes, and you either buy or sell to take advantage of the price difference. Within trading, there are sub branches like: swing trading or day trading, etc.
- Speculation: this is what majority of people who think they are “investing” or “trading” is doing. they have no system and no reasonable expectation of what’s to happen to the stock, they just hope to get lucky. aka. gambling.
- In reality, fundamental and technical analysis are often used together, there is no pure investor who doesn't look at the chart, and no pure trader who doesn't look at the company. There are people who are successful in either investing or trading or both. Usually trading is more time consuming because you are more sensitive to price changes and require constant monitoring, investing can be think of as more passive but you may not convert your gains or losses to realized for a while.
- a note on Forex and options trading: I have not tried Forex trading, but I get 10+ DMs about it daily from multiple sources who claim to teach me how to make millions, so I don't think that's for me. Options trading I have experimented with, and not very comfortable with the volatility (or swing), and Warren Buffet has once called options “work of the devil” or something like that. But I stay open minded and maybe will give it another shot someday. For now, I stick to what I know best.
11. Understand risk management:
To explain risk management in the simplest way: risk is: the chances you are wrong, multiplied with the consequences of being wrong. For example, the risk for buying Bitcoin could be said to be higher if you think the chances of going down in price is big (as it has happened before) and the consequences of going down in price is big (as demonstrated it could easily correct 50% or more in a bearish cycle). Not the perfect example, but you get the point. I hope you see that all “risk” are relative. In other words, what is risky to others don’t have to be risky for you. Ultimately, it comes down to those 2 factors. For example, if you are absolute certain that you cannot be wrong because you have some “insider information” or information advantage, investing in that stock would not be risky to you, but to the outsider, it would look like you are insane. This is also what Warren Buffet calls “operate within your circle of competence”, he invests in what he knows best and put billions in a single stock, violating all conventional rules for risk management, this is also why Warren did not get on any of the “internet” stocks despite the hype, because he did not understand them, so the risk is high for him. The second factor for risk is also important. If you invest $100 in bitcoin and you are a millionaire, whether you are right or wrong, your risk is low because the consequences of being wrong (even totally wrong) is just losing that $100, which is not a serious consequence.
-a note on Blackswan risk: there are maybe risk factors that are “unknown unknown”, these are most dangerous because you did not realize that they exist. An example would be oil price going to the negatives in March 2020, nobody would think that’s even possible and were surprised by it afterwards. According to Taleb (expert on blackswan risk), you likely cannot avoid them because you don’t know what they are, you just have to be aware that they do exist so never put everything in one basket (even if you are 100% certain about something).
12. I put this one last, because I think most people probably are willing to take the personal responsibility to take care of their finances and investment.
But nonetheless, from time to time, I see posts that make me want to stress this point, because this is arguably the most important thing when it comes to being a retail investor:
Stop getting victimized, never make an identity out of
“I am not a professional investor”
“I don’t know how to invest”
“but I am just an engineer”
“I am not good at math”
Investing successfully has nothing to do with any of that.
“I am not a professional investor” — of course you are not, but you don’t have to be professional to invest successfully.
“I don’t know how to invest” — not yet, you don’t.
“but I am just an engineer” — good, you probably already have an edge in logic and analysis.
“I am not good at math” — you don’t need math, you have a calculator and Excel spreadsheet.
Know this, no one is special, not even the billionaire investors, the public like to give them a superficial glamour and to think they were born differently, but the fact is, fundamentally, we are all pretty much the same. They just learned something after birth that you haven’t.
In the neo-capitalism world we live in, not knowing how to invest or take the responsibility of your own finances in your own hand (financial illiteracy) is equivalent to not knowing how to write (illiteracy) in the middle ages.
In the Middle Ages, writing or learning how to write was reserved for the ruling elite, most people didn’t know how to write, and they didn’t think there was anything wrong with that. In every town or village, there were probably one or two literate people, and other people come to them when they needed to write a letter or draft a contract. Sounds absurd right? Imagine you have to do that today. Well today, the masses still don’t know how to invest themselves and pass on the responsibility to their financial advisors or so-called investing gurus. See the similarity?
Understand this, we live in a neo-capitalism world, which is characterized by investing and re-investing of profits. This is the foundation that our lives was built on, not knowing how to invest is the new “not knowing how to write”.
True, capitalism also preaches specialization of labour to maximize the efficiency of production. I go to my cobbler to get my shoes fixed instead of fixing it myself, because I can make more doing what I specialize in, everybody wins. But we don’t live in a “cobblerism” world, cobbler is not the foundation of our modern lives, capital is.
So please no more crazy talk about going to financial advisors and not taking responsibilities yourself.
Lastly, you may point to the fact that some high net-worth individuals go to their asset managers to invest. That is true, but before they do that, they already understood the took responsibility of their finances. That’s probably how they became high net-worth in the first place. They most likely already had a financial plan, diversified their wealth in several businesses, and took only a portion of their total wealth to the asset managers, and when the asset managers sold them on a private equity fund, they knew exactly where their money is going, and the total risks involved down to the dollar figure.
This goes without saying, but taking personal responsibilities of your finances also means that you stop buying what stocks your coworker John is buying, or taking random stock tip from the Internet, without properly understanding it yourself and assessing if they are the right ones for you.
Congrats, you’ve made it.
If you want me to expand on any of the 12 topics I mentioned here, or have questions, you can leave them in the comments. Thanks for reading!
