A lot of people think they’re like Warren Buffet – greatest investor in the world. They’re going to beat the stock market, retire early, and buy a mansion beside the beach.
A lot of people think that they’re the 1% who are special. Or at least, they’re almost there; just one more “Become a Millionaire Investor” seminar and they’ll make it big!
But here’s the painful truth – you’re more likely to be in the 99% than the 1%. In fact, if you’re reading this right now, I’ll bet you’re part of the 99% like me – not a multi-millionaire stock market genius.
This isn’t to say you’ll never reach the 1% of investors. With a lot of hard work, connections, and God’s grace, maybe you will. But it’s not going to be easy. And do you even want to put all that blood, sweat and tears into reaching there?
So, if you’re okay to be in the 99%; you just want to be a good investor with good returns – without risking too many grey hairs – this one is for you. From a fellow 99%-er, here’s a strategy that will help you be a better investor: play to not lose.
Playing to win vs. playing to not lose
What does playing to not lose mean?
Let’s take sports to illustrate this point. Sports is where most people play to win. This sometimes messes with our brains, and makes us want to do spectacular, but much riskier things.
But I recently read* about how for the most of us – it isn’t how spectacular we are at playing the game that determines who wins, but it’s who makes less mistakes.
The difference between professionals and amateurs is that amateurs make mistakes; a lot of mistakes.
So if you’re an amateur sportsperson, you can use this to your advantage. If you’re playing badminton to win (and not for style), focus on playing non-risky defensive shots, instead of spectacular cross-court smashes. Instead of going for the kill, just get the shuttlecock in a safe area. This isn’t the way Chong Wei plays, but he was World No.1 for 6 years and a 3-time Olympic medallist – and you’re not.
It’s boring as hell, but statistically you’re going to win.
Now let’s extend that approach to investing…
How much can you afford to lose?
When it comes to investing, too many of us invest in things we don’t really understand. We want to get huge returns, but by not understanding – we take on too much risk.
It’s human nature to want maximum benefits, without putting in the work. We want to play to win big, because winning feels so good.
But it’s the badminton equivalent of not training at all, and then expecting to beat Chong Wei. Unfortunately for us, the market is a whole lot meaner than Chong Wei.
Investing is not a lottery ticket, which grants you instant riches if you’re lucky. That’s called gambling, and you can do that at Genting. At least there, they have published rules, and you can calculate exactly what your odds are.
On the other hand, investing in something you don’t understand could make you lose all your money.
Only take risk in proportion to knowledge
On the bright side, it’s easy to learn about personal finance and investing. There are a million websites devoted to teaching non-finance people about investing basics. Just stick to the realistic ones.
As you learn more, you can start taking more calculated risks. Just a few hours studying (and talking to the right people), and you could quite competently start investing in Amanah Saham. This should immediately double your returns from Fixed Deposits.
A few days of further studying and you’ll have unit trust basics covered. You could then put in a little money to test; and see how it works. Then you can move on to riskier items like the stock market, REITs and ETFs. For those who can stomach the higher risks and extreme volatility, they can explore the cryptocurrency and NFT scene, which have been gaining traction in the investment arena in recent years.
If you are new to the investing game, you can get started by letting a computer algorithm manage your investments by using a robo advisor which has the advantage of low fees and wider access to many types of investments.
The key is to not invest in something you don’t understand. If you really want more returns and risk, go ahead – but please educate yourself first. How much risk you take needs to be proportionate to your skill. Just be aware – in the market, there are a lot of professionals who are playing against you.
Remember: play to not lose.
What the conservative 99% investor can do
So we agree that financial education is good. But on the other extreme, understand that some people make a living off other people’s ignorance – by promising them get-rich-quick schemes.
You can quickly tell by their Sponsored Ads on Facebook: “Guaranteed System to Beat the Stock Market. Register at…”
But ask yourself – have you ever met someone who became rich through some super strategy to beat the stock market? Or did he become rich, by claiming to beat the stock market, and then selling a book/course/seminar/MLM membership?
Be careful who you take financial advice from. People will tell you all kinds of optimistic stories to get you to give them your money. For starters, before you hand over your hard-earned money for an investment opportunity, check that the person or company you are dealing with is licensed by the Securities Commission Malaysia
If you can tolerate a little more risk, there are now a wider variety of online investments available to Malaysians which offer lower fees and the opportunity to start earning passive income.
You might not get double-digit returns that your loud friends boast about – but you won’t live in fear of your investments turning to crap overnight either.
There’s no shame in playing to not lose, if you don’t have the skills to play like a pro. You might not be great at investing, but maybe it’s enough for you to just be good at investing. To be comfortable in the top 20%, instead of risking everything to be in the top 1%.
After all, the only thing worse than an average person with secure investments is an average person who’s broke.
*The articles were based on the writings of Simon Ramo and Charles Ellis.
This article was first published in February 2016 and has been updated for freshness, accuracy and comprehensiveness.
