All of us can become better investors.
Yes, all of us: for one of the things that defines some of the world’s most renowned investors is their awareness of their own limitations, and awareness of their own lack of knowledge.
And certainly, that’s true of pretty much every expert and professional investor that I’ve spoken with or interviewed over the years.
So how to become a better investor? The good news is that it’s easier than you think. Consider these suggestions, for instance.
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1. Broaden your horizons
Thanks to the Internet, a huge resource is available to investors, either for free, or at very little cost. It’s never been easier to access the finance and business pages of high-quality newspapers and magazines, without leaving your armchair.
Many of them send out newsletters, too — alerting you to interesting features and stories. I subscribe to quite a few: some days there’s very little to interest me; other days I’m spoiled for choice.
The Financial Times’ collection of reports and newsletters, for instance, the Daily Telegraph’s daily Telegraph Business, the Mail Group’s This is Money, The Economist’s various newsletters, the Washington Post — I get them all.
Not every publication will suit everybody. Try a few; find the ones that work for you. And although print media is going out of fashion, a printed high-quality Sunday newspaper can be a wise investment — even today.
2. Avoid confirmation bias
Within limits, I’m also a fan of online forums and discussion groups. There’s a wide range of these, and — to be frank — not every forum will suit every taste.
Again, it’s a question of finding forums that match your own investing style. As an income investor, for instance, I’ve little interest in forums largely devoted to trading, or chatting about speculative small-cap stocks.
What will you learn there? Different opinions, in short. One of the biggest dangers facing all of us is confirmation bias and groupthink — that is, hearing only views that match our own world view and preconceptions.
Online debate can be robust, and it isn’t to everyone’s taste, but it’s certainly a good way of getting your world view and preconceptions challenged.
3. Read your way to riches
There are some superb investment books out there, and too few of us have read them. For a modest £20 or so, they’re the best way that I know to sharply ratchet-up your understanding and motivation.
Put another way, many of us — quite rightly — avoid investing in things that we don’t understand. That £20 or so investment in a book can change that, very quickly.
Where to start? Which investment books? Some personal favourites:
Smarter Investing, by Tim Hale. A Random Walk Down Wall Street, by Burton Malkiel — although written with the American reader in mind, it’s still a classic. And Winning the Loser’s Game: Timeless Strategies for Successful Investing, by Charles Ellis.
Somewhat more specialised, and a bit more challenging: Investing Against the Tide: Lessons From a Life Running Money, by legendary fund manager Anthony Bolton, and The Most Important Thing, by the equally legendary Howard Marks.
I’ve interviewed Malkiel, Ellis, and Bolton, and you couldn’t wish for more expert guides.
4. Ditch those funds
Investment funds and index trackers are very popular, particularly with novice investors. They can also be a very expensive way to invest, particularly on certain platforms.
I understand the attraction, of course: instant built-in diversification, and easy exposure to markets and asset classes that it could otherwise be challenging to access — America’s stock markets, Asia’s stock markets, and the bond markets.
Even so, when you look at the top ten holdings of your average UK-focused fund or tracker, you’ll almost invariably find a decent clutch of the upper reaches of the FTSE 100.
Why not buy them yourself, and cut out the middle man? It’s not difficult. More than that, it’s educational.
5. Have a strategy
A lot of investors are opportunist impulse-buyers of whatever takes their fancy. Newspaper tips; a friend down the golf club; a sense that they must ‘know’ the company because they buy its products — portfolios built like this will generally look messy, and will often have an indifferent performance.
Have a strategy. Are you a growth investor, or an income investor? Why are you investing, in short? What is your approach to diversification? What is your approach to tax wrappers? Do you invest overseas, or are you UK-only?
Ask yourself some of these basic questions. The answers might surprise you.
