The Time Wastage Conundrum and Investing

If I got a dollar for every email I receive containing the line – “How do I start investing?” – I would make a lot more money each day than I am now. But seriously, this question is posed so often to me now that I have even drafted up a standard email template in response because my answer always seems to be the same. Put simply, as with most things in life, you must learn to invest before you actually start investing.

Learning to Invest

If you break down learning, the most fundamental aspect to it starts at the absorption of information – whether it be through visual or audio means. Yes, it’s true that some people learn better by practically experiencing things but I would argue that fundamentally, most people truly learn through reading. Undoubtedly, reading is the single most important factor in investing. Forget the complex maths, the structured finance products, the thousands of videos I get sent on ‘how to beat the market’ and ‘earn $1 million in 24 hours’ – they are just trash. They only demonstrate someone elses learning (& a lot of false promises). No, the truth behind learning to invest is straight forward and simple – reading.

Warren Buffet once famously said that when he first started investing he

“read everything. Every magazine and newspaper that had financial commentary in it, I would read and question and jot down notes. The more I read about the market, the more I understood it – and the more I understood it, the more I began to understand where to put my money.”

In my mind, I have no question that this is true. The best way to get interested in investing and proactively engage in ways to make your money grow, is to target an area of the market that you are interested in – and read a whole lot about it. The more you read about a particular sector, the more you will begin to understand the niche areas of this sector. ‘Big Gain’ investing is ALWAYS centered around niche areas and information dissemination. It’s a measure of what you know that someone else doesn’t and how quickly you can act on that information before the market does. Of course, I am not suggesting that you start engaging in ‘insider trading’ – rather, I am suggesting the complete opposite – by researching and reading as much information as you can find on a particular market sector that you are interested in, you will begin to understand the market trends and niche areas to target. This will then allow you to ‘cherry pick’ investments that will return great, if not, outstanding results.

But Tim, I don’t have the time to read!

This brings me to the second point that really frustrates me and is what I actually intended to focus the majority of this post on. People are always complaining to me that they have made “bad investments” or that the market “is against” them. I respond by suggesting – “why did you choose that investment in the first place?” And they typically say to me, “well such and such said this” or “I read a report which said that” – and my response is then “so what you are really telling me is that you didn’t really research the investment“. The most common defense to this is then “well I have a financial planner who looks after my affairs”, and then I respond “well perhaps you really didn’t research the financial planner well enough?”. I am by no means trying to be smug with responses such as these – I am merely trying to make these people aware of what they are really saying and take some accountability for their actions. Ultimately, it’s their money that’s being lost and I often find it’s me trying to convince them to be more proactive in the management of it.

I think sometimes people get dissociated from the fact that they are paying financial planners to work for them. That’s right – the market is awash with financial planning companies, and if your planner is not returning you what you expect them to be returning, or more importantly, what they have allegedly ‘promised based on past returns’ – there is absolutely nothing stopping you moving to another one. You should be consistently maintaining contact with anyone that manages your affairs to ensure they are not ignoring your portfolio – not matter how small – in favour of higher net worth clients. And in truth, if they are any good – they should be maintaining regular contact with you. If they aren’t – question them as to why they aren’t! (Perhaps this topic needs another post as I again digress from the main point of this post.)

Realistically, what happens to most mum and dad investors (who don’t have a financial planner) is that they trust their money to blue chip stocks which are always market indicators – that is, these stocks market value (market capitalization) is so large that they are always in line with business cycles. This means that mum and dads investments will also always rise and fall with the market, and they will complain that their portfolio has little or average growth.

The key to making strong profits from investing, and the strategy that stock brokers and fund managers take, is to trade stocks that are always increasing (duh!). This seems like such a stupid statement to make, yet I find that not many mum and dad investors truly understand it. This again, comes back to the principle I am attempting to focus this post on – time. I think it may not be such a case as them not understanding it, as much as it is a case of them not having the time to understand it and therefore not bothering to actively manage their money. Most people become completely ‘daffed’ with anything to do with investing and are often confused by the financial lingo. I absolutely empathize with these people because life gets busy and one more thing to add into the mix is often just too hard. But at the same time I argue – if you never make an effort to learn about it, then how are you every going to understand it and why are you risking your hard earned money in it ?

Call me a cynic, but I have always been of the belief that if you are going to trust someone else with your money without understanding the core principles behind what they are doing with it – then you are gambling. This is what has lead to some many problems in the financial planning sector – a core misunderstanding between client instruction and financial planning representation. Have a basic understanding about where your money is going to be invested, and question why it is going there. If you don’t feel comfortable with a recommendation, suggest another one. Ask questions, and then ask some more.

They key to it all of course is to make time to read.

Let’s break it down very simply and easily again. Make time to read.

There are 168 hours in a week. Subtract 56 of these for sleep at 8 hours a day, and you are now at 16 hour days or a 112 hour weeks. Lets now also assume that each day it takes 2 hours in the morning to get up and get to work and the same to leave work and get home – a total of 4 hours. That’s another 20 hours gone for the average 5 day working week. You now have 92 hours left in the week. Lets also subtract 45 hours for weekday work, and you arrive at the magic number of 47 hours of free time for the average person.

47 Hours!

You cannot honestly tell me that you cannot find 2-3 hours (or even 30 minutes) a week out of this 47 hours to read some information about the stock market or investing or a market sector that you are personally interested in. This free time doesn’t even include the 5 hour weekly lunch break period or the Internet “breaks” when you are at work. Extrapolate this figure across an entire year without any holidays and it’s 2,444 hours of free time! This is such a huge amount of time that you currently spend doing other activities or watching TV! 30 less minutes of television a week will not only improve your health, it may improve your wallet!

I am not suggesting that you become a professor of finance, or that you need to be the next Warren Buffet. I am simply suggesting that you have so much free time available when you break it down, that to really allocate a tiny portion of it each week to reading something about investing is not much to ask. It’s only going to improve your knowledge and help you manage both your money and your investments better throughout your life and those of your future generations.

Hopefully in the time it took you to read this post, you are already better off