Top 10 Excuses Investors Make And How To Overcome Them by Jae Jun, Old School Value
What You’ll Learn
10 common excuses for why people don’t invest or don’t try harder
Advice on how to overcome these excuses
2015 has been the first “tough” year in over 5 years. The pain of the great recession is so… yesterday.
Therein lies the problem.
Chris Hohn the founder and manager of TCI Fund Management was the star speaker at this year's London Value Investor Conference, which took place on May 19th. The investor has earned himself a reputation for being one of the world's most successful hedge fund managers over the past few decades. TCI, which stands for The Read More
5% drops have become unbearable to most and many are afraid to invest… again.
I haven’t been 100% invested for a while, but I’m certainly not out of the market. My cash pile has been about 30-40% over the past 2 years and I’ve been adding to my core positions lately too. But even with a sizable cash amount, it’s been more than enough to beat the market and achieve returns I’ve been satisfied with.
Warren Buffett says that he maintains a $20B cash pile no matter what.
Whether you’re new to investing in stocks or not, or you know somebody who wants to start investing, there are a ton of excuses that hold people back.
Maybe this is you.
Or maybe you know someone like that.
But with the new year approaching fast, here are the top ten excuses people make and how to overcome them.
#10. I Don’t Know Anything About Investing
The classic scapegoat answer you hear all the time.
Actually, it was my answer for many years.
I knew nothing about any kind of investing, let alone picking stocks.
All I had was a 401k and the desire to make my own investment decisions.
I had already experienced my first 100% loss due to a bad financial advisor, so I decided I would learn how to do it myself.
The good thing about knowing nothing is that you don’t have any preconceived notions about how all this works. Before all this, I had never taken a finance, business, accounting or economics class so everything was brand new.
But knowing nothing helped because it helped to approach it with fresh eyes and an open mind, which is exactly what you’ve got.
Thankfully I found the path of value investing.
#9. I Don’t Have a Lot of Money to Play With
Starting small helps.
You are less afraid and it’s just easier to manage.
After all, if you are afraid of losing $200, how on earth will you handle paper losses of $20,000 if you have a million dollar or bigger portfolio in the future.
I started investing with just $3,000. That was big to me back then.
If you don’t have that much, take a year to save it and then start investing. If you can find several things to trim out of your budget that add up to $250 per month, you’ll be right on track to have $3,000 in savings at the end of year to begin your investing journey.
And yes, the hard truth is that you have to learn to live beneath your means in order to save money that you can then invest and grow.
#8. I Don’t Know What Stocks to Buy
It’s all about a routine.
If you exercise or go to the gym, you’ll know what I mean. Instead of just showing up at the gym and mindlessly going from one workout equipment to another, if you have a specific goal and routine in mind, you’ll be more effective and see results.
This is a call to action to come up with a game plan.
The most basic idea and easiest to get started with when picking stocks in the value investing approach is this: Buy undervalued stocks with strong fundamentals.
So start with this big idea and then work backwards by asking and researching questions like:
- what makes a stock undervalued?
- what is considered undervalued?
- what are the conditions for strong and weak fundamentals?
- what price should I buy to ensure safety of principle?
When you get to the point where you know what to look for and you have a routine or process of looking at stocks, get stocks ideas from these:
- Free OSV Value Screeners
- 15 best websites for free stock ideas
#7. I’m Not as Confident as Most Investors
In other words, inferiority complex – which should have nothing to do with investing and your money.
But it’s a good quality to have, because then you won’t fall prey to being over-confident or arrogant.
Being over-confident when making investments in the stock market eventually leads to disaster every single time. On the other hand, you mustn’t let fear keep you on the sidelines.
Keep this in mind: If you follow a solid value investment approach like what I advocate here on OSV, that should boost your confidence because you know you’re focused on picking undervalued companies with great fundamentals.
#6. I’m Too Old to Take Advantage of Long-Term Value Investing
Yes, the younger you start the better, but how does that make people in their forties and fifties feel?
It makes them feel like it’s too late, and that’s simply not true because it’s never too late to start investing.
Even if you start at 60 and live to 88, that’s 28 years of investing that will your family or any other cause you support.
Warren Buffett is 85 years young.
Charlie Munger is 91 years young.
Walter Schloss passed at 95 investing to the end.
So to did Irving Kahn who passed at 109 years of age.
Investing makes your mind sharper and younger and is never too late.
#5. I Don’t Know What Strategy to Use
This is a legitimate problem because there are so many ways to invest.
The best way is to stick with one strategy at first and expand as your experience and skills grow.
Here are a few approaches you can research and dig further into:
- Net net strategy of buying stocks dirt cheap stocks that come with a ton of baggage
- Companies with no debt
- Companies where the growth in FCF is faster than earnings growth
- Stocks with strong brands that offer rock solid dividends
Another approach is to simply weed out any stock you come across with poor cash flow, too much debt, bad earnings, negligible anticipated growth and inconsistent numbers.
#4. I Don’t Know When to Sell a Stock
A core idea of value investing is to limit the number of transactions.
But, there are reasons to unload a stock:
- you realize you made a mistake in valuing the company
- the company’s fundamentals have changed
- a better value opportunity is available
- you have a cash emergency
- the stock has risen too far above its intrinsic value
Any time you buy a stock, you should also outline for yourself what your exit strategy will be, and stick to it.
Here are tips from the gurus on when to sell.
Here’s a more behavioral look of selling stocks that I recommend.
#3. I Can’t Handle the Stock Market’s Volatility
Yes, the stock market is volatile.
The stock market is also only volatile if you constantly check stock prices.
If home prices were published every second, would you move out every time it dipped?
Warren Buffett has always been bullish on the US economy which is a huge vote of confidence on what he thinks about the long term future.
Guessing what will happen next week or month is a fool’s game.
Over the long-term the stock market has always done one thing and one thing only – RISE.
Any given shorter period of time might see a crash or a decline, but the market always recovers and then goes on to new highs.
The Old School Value approach to investing is to keep the long term firmly in mind.
Keeping things to a long term perspective drowns out the noise and the people who are more interested with taking the money from your pocket.
#2. There’s Too Much Investment Information
Information overload is a real problem.
But the secret is that you don’t need to digest all of it.
Find sources of information you feel confident about and can trust.
Here’s my list of 60 valuable value investing resources.
#1. Understanding the Financials and Accounting is Too Hard
I had never taken any kind of finance, accounting, or economics course in my life. You don’t need any of that (although it’s not a bad idea).
All you need is the desire to learn, and no excuses.
You don’t need to be an expert, but you do need to know the basics and get to be proficient.
If a 17 year old can learn basic accounting in school, why can’t you?
If you can do plus and minus, you’ve got the skillset required.
Start with this tutorial of how Warren Buffett analyzes the financial statements.
How many of these excuses have you heard yourself or others using when it comes to investing?
None of them should hold you back from putting your hard-earned dollars to work for you in the stock market, especially if you’re committed to taking the value investing approach outlined here on OSV.
When investors start using the excuses I’ve outlined here, they often wind up doing something they think is “safer” with their investment money, such as putting it into bonds, mutual funds or under the mattress.
I don’t know about you, but I want to put my investment money to work for me in the one place that history has shown will continue to do well for decades to come, and that is the stock market.
Stop making excuses.
Dive into the value investing journey to create a brighter financial future for you and your loved ones. When you look back years from now, you’ll scratch your head and wonder why you waited so long.