The most important characteristic of the investor is his ability to face all kinds of calamities and unpleasant events in the markets without giving in to them.
Posted at 2:54 p.m.
“Everyone is watching the historical curve of the market, and it is going up. However, to grow your money in the long term, you must first look at what the market makes us live in in the short term.”
That’s one of the lessons conveyed by writer and investor Morgan Hausel, who gave a virtual conference noon Thursday at the invitation of CFA Montreal.
A partner at venture capital firm Collaborative Fund, Morgan Housel is a bestselling author The Psychology of Money: Lessons in Wealth, Greed, and Happinesswhich has sold more than 1.5 million copies worldwide.
His approach consists of paying attention to many phenomena and models from different disciplines in order to identify useful lessons in the world of finance and investors in general.
He says that one aspect of investing that is often misunderstood is the power of time and the importance of compound interest in growing our assets. Forces that cannot work in our favor if we are buying and selling with short term market movements.
In his early days as an investor as a teenager, Morgan Housel admitted that he made “every possible mistake” by investing in small stocks (Feast In English), highly volatile stocks that typically trade for less than $5.
“I thought day trading was the way to make money in the markets, and soon I lost all my money and learned my lesson.”
Morgan Housel points out that investment growth takes time, but time is a relative concept. For example, if you ask investors if they are investing for the long-term, many will answer “yes.”
“But if you ask them to define the term ‘long run’, many will tell you a year, whereas we know that historically long has meant at least 10-20 years. It’s very easy to underestimate the time you need to spend in the markets in order to put the odds in your favour. »
Mr. Hausel is also interested in how money can make us happy. On this subject, the game is above all mentality, because a person who earns better but always spends more will never reach a state of satisfaction. A rising reality in a world where social media bombards us with desirable images, where the possibilities for travel, dining out and shopping are endless.
For example, the 1950s are often thought of as the perfect decade, when the market was booming, jobs were plentiful, and families were large, notes Morgan Housel. However, adjusted for inflation, the median household income today is twice as high as it was in the 1950s.
How can this shift in perception be explained? “I think in the 1950s, prosperity was better shared. It was easier for people to control their expectations. Since that time, our salaries have doubled, but our expectations have doubled. If your expectations are rising faster than your income, you will never be happy with your money.” »
Over the past decade, Morgan Housel has implemented a passive investment scheme in its portfolio that relies on buying exchange-traded funds (ETFs) that offer market returns, with low management fees.
“However, I don’t judge other investors who do it differently,” he adds. I don’t think there is only one way to invest. I’ve found the right strategy for me and my family, but that doesn’t mean there aren’t dozens of strategies that might work for you. »
Morgan Housel concludes that realizing that you have to invest over the long term — ideally for 25 years, 35 years, or even 80 years, in Warren Buffett’s case — can be very liberating.
“You have no control over what the market will do in the coming weeks, months or years, or what the economy will do in the short term. The only thing you control is your behavior. And when you understand that behavior is the key to investment success, that is actually a very optimistic realization.”
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