Whenever someone asks me for advice on investing, I can usually come up with a few pointers and encouragement to help them get started. Usually we talk about reasons, goals, and methods for investing. When I explain it, it seems so simple and easy, but when the conversation ends, they are still too scared to act. What I can never promise is a guarantee. There is no guarantee that they can make money, nor is there a guarantee that the investment will not go sour. I end up telling them that despite any amount research done prior to taking action, it boils down to believing in yourself and taking a leap of faith. It’s this last part that scares people away.
I can imagine why this would happen. I cannot recall a class during my days in high school and college that had this question as a problem:
If you were given $10, how would you turn it into $20? (for a return of 100%)
It’s a simple question, but not a single class ever posed this question during class, in homework, or a test. But yet you are told to do some of the hardest things – find a complicated derivative or integral, solve for differential equations, read a book with an absurdly confusing writing style, and my favorite: transform a time domain equation to a frequency domain equation. Seriously, what the heck does this even mean?
What it means is not important. What’s important is that you figured out how to do these things, otherwise you would not have satisfied your requirements to pass the class and ultimately obtain a college degree.
Here’s another way to look at it: In college, on your first day of class, there was no guarantee that you would pass the class. You didn’t have any prior knowledge of what was taught in the class other than the course title you read when registering for it. You even paid for the class knowing very well that you could fail. If you failed, you’d have to take it again next semester, which meant you had to pay AGAIN for that class. Regardless of whether you wanted to do it or felt you had to do it, you paid for a class knowing you didn’t have a guaranteed chance of passing. But either way, you had believed in yourself because you told yourself you had to pass this class in order to get your college degree. That was enough to push yourself. This means there was a point where you believed you could succeed at something and you had taken that leap of faith to make it happen.
When you look at it this way, how is it different from taking a chance with investing? You could try your first investment, and if it fails, you’ll learn why you failed. It only makes sense to try again because the second time around you’ll be smarter than you were to begin with. Just like if you failed a class the first time, you’d probably pass it the second time around because you would be aware of where you made your mistakes during the first time around. You understood the pain of failing so you made sure it didn’t happen again. But would this drive and motivation have come if didn’t understand what it was like to fail?
Investments are virtually no different from take a college course for the first time. In fact, I would argue to say that investing is likely easier to learn provided that you are willing to see where you made your mistake and learn from it. Investing has an advantage in the sense that tons of research material readily available before you take the leap. A class is worse…you probably never did a Google search on your course first – you simply took it because you had to. Once you got started, you were determined to pass. Action was taken and you told yourself you had to succeed.
Bottom line: there’s no reason that investments cannot be approached in the same manner as taking a new college course.