3 Signs You’re Not An Investor Yet [TFC 108]
Gone are the days where one needs to have a huge capital and a wealth of financial knowledge to start investing. With the influx of easy-to-use brokerage and robo-advisory apps, it is so much easier to enter the investment space nowadays. However, that doesn’t mean that you are an investor yet. Find out whether you’re just investing or an actual investor in TFC 108!
Technology is wonderful these days. With just a tap on the screen, we can make investment decisions any time, anywhere. While it is encouraging to see more people taking charge of their finances and investing, it is very important that we do not get blinded by the ease of it and simplify the investment process. Ultimately, it is your own money at stake here!
To assess whether our investing mindset is sound, we should learn to recognise the 3 common signs of an investing non-investor. Are you investing because you want to “try try only”? Does the fear of investment loss keep you up at night? If so, then you may want to take a step back to review your thought process on investments. But don’t worry, investment is a journey, not the end point. Let us guide you through it.
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Reggie: Hey Coconuts! So yes, recently there’s a lot of promos out there getting you to give you free share to open a brokerage account, trying to get you on their robo-advisory platform. Even the traditional guys have some sort of digital functions. Some of the payment apps have created new access to investment products and what have you. There’s an increase in financial products targeted at the millennials, of course, because we are at our earning prime. A lot of marketing dollars will focus on us.
So when we look at that, a lot of people think that they’ve started investing and they think that “yeah bro, I’m an investor now!” But I want to just burst your bubble and let you know that I think many people are not yet an investor, although they may be investing. I know… very semantics, that’s what I like. So I’m going to share you three signs that you are not yet an investor.
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Good morning everyone! I welcome you to another day with The Financial Coconut. In our podcast, we’ll be debunking financial myths, discovering best financial practices and discussing financial strategies that fits our unique life. You get it, ultimately empowering us to create a life we love while managing our finances well. Today, we’re going to spend some time to talk about three signs that you are not yet an investor although you’ve put some money in, you’ve set up your broker account, your money is growing, your capital is rolling, but you’re not an investor yet, you know? Yeah, really…
Before I get flamed, I want to put out a caveat out there that I think it’s great that many people are starting to put their capital to work. They’re starting to embrace and recognize the power of compounding, the power of investments and all that jazz. But I do think that because a lot of these investment platforms are trying to appeal to us, they make investments sound overly simplistic and many of us do buy into the story. We just think that “oh, we put money… we put money in the market means we’re investing.”
There’s actually a lot of nuance in this thing, but all that being said, I want to applaud you for putting your money to work, to start this journey. I’m not saying that for everyone that is not yet investing or on the fence, you’re bad or lousy or whatever. You should challenge your assumptions. You should recognize your fears. You should work with what is palatable to you.
I’m not saying that you definitely need to do something but if you’re an investor, that means you are subscribing to the idea of compounding, you’re subscribing to the idea of delayed gratification and all that stuff, essentially trying to put your money to work so that in the future, you can have more money to do other things. So I think that is a fair narrative and I can be behind this narrative. I’m just saying that does not mean you definitely need to be investing or definitely need to be very active or put a lot of money in an investment to be considered a part of the group or what have you.
So, today we are just going to focus on some signs that you are not an investor. I know very semantics, but there’s a difference. You put your money in the market. Yes, I can consider this action investing because you put your money in the market. Simple, a simple definition. I can say that you are investing, but I don’t think you’re an investor.
I think a lot of people and I sense that a lot of people are really just either following the crowd or just… “well, my friends are doing it and I want to be part of it. I FOMO (Fear of Missing Out).” They’re speculating or they’re trading and gambling and it’s okay. It’s okay to be trading, speculating, gambling and what have you. I don’t think it’s a problem, but to recognize that you are trading, gambling, speculating is important.
Do not oversimplify to think that you are investing. Don’t assume something that you’re not doing. If you are speculating, say you’re speculating. If you’re gambling, say you’re gambling. It’s okay. To me, I think it’s okay. The biggest problem is when you are not really investing, but you try to mask it up and say “I’m investing, I’m an investor.”
This is the part that I want to point out to you so that you can be aware that maybe you’re not yet an investor in terms of mindset, in terms of how do you look at the investments and then from there, you can put your work in to learn a little bit more about how investing work. Learn a little bit more about risk reward structure. Learn a little bit more about probability. Learn about the different tools and then be more aware and come to a better situation to actually be an investor okay?
I’m not saying that you shouldn’t invest… that it’s only for the institutional people, let the professionals do it for you. I think you can pick up on your own if you want to, just know the amount of work or if you just want to get someone to do it for you, great! Do it. The idea here is to be clear about where you are and what you actually doing and from there, be very objective about what is the upside, what is the goal, what are the directions and what are the realities of investing?
That is the thing that I want to put it out and I’m sure we’ve talked a lot of different topics out there. We’ve covered a lot, different ways of investing, different kinds of services out there and all that jazz. So today, I’m just going to do the signal portion. What are some signs for you to be more aware that you’re actually not very investor yet? I’m going to also expand on some of the realities and some of the mindsets that maybe you can look towards adopting, if you have such signs.
The very first sign that you’re not yet an investor is: “I’m doing it for fun one.” I hear this a lot and I have to put it as point number one. “I try try only, I’m doing it for fun.” Bro, really? Nobody try try one. Nobody’s doing it for fun. Everybody wants to make money. Really. Anybody that put money to the market, tell you they “try try for fun”, they are just giving themselves the room to fail. They’re giving themselves the 台阶to下来 (stage to come down; avoid embarrasment). Essentially, if this shit mess up then they have a reason to say “you know I do for fun only. I try try only.”
This is very problematic and I hear this a lot. There’s a tendency when someone says that “I’m trying for fun. I’m doing it for fun”, they don’t actually know what they’re doing. They’re just following what everyone else is doing but they hope to get the same results as everybody. They are not following just because they follow. They follow, hoping that they get the same results as the people that they are trying to emulate but they don’t exactly know what’s going on. They’re not very clear. They don’t have a very strong fundamental. They got the big hope but they don’t know what they’re doing so they just copy.
Instead of saying that “I’m just emulating, I’m just copying and I’m just figuring out what things are going”, they give themselves an arbitrary reason on top of it to say that they’re doing for fun. So once and for all, nobody invests for fun. Everybody invests to make money, which is why I re-emphasize my point that you should not see yourself as an investment because you are not for profit.
You’re not here to make money. You treat yourself as an individual. You’re here to experience life. You’re here to live the best of what you can and shape the life for yourself. Do not see yourself as an investment and I do not agree when the state tells me that the people are our assets. No, people are not assets. People are citizens.
Every time you see something as an investment or something as an asset, you are expecting returns. You’re pricing the expectation for profit and returns, not for fun. So next time you hear someone say “oh, I’m just doing this for fun. I try try only.” You should congratulate them for trying. Congratulate them for saying that “hey, despite not knowing a lot of these things, you are willing to try. You’re willing to explore. You’re willing to take a step forward. I think that’s great.”
My view of things is that you should try everything. Just don’t die. Trying and going all in is different. Not everything need to all in. Most things you don’t all in one okay? Most things you just try, you allocate capital, you’re testing it out. Over time, it gets clearer, you put more capital and you double down on it. Trying is beautiful and perfectly welcoming, and you should congratulate these people for wanting to try.
But every time you hear people say, “I’m just doing it for fun. I try try only”, you should also nudge them or nudge yourself to recognize that you’re actually not that clear about what you’re doing and you do need to do more work. You need to do more study. You need to understand more things and we’ve covered all sorts of stuff on the podcast. You can go and check it out. Today, I’m just going to focus on the signs.
Recognize that there’s a lot more work to do whenever you give people these reasons or you hear people say these reasons. But congratulate them for trying. Just remember that you’re putting your money to work and you want to be a little bit more aware. You worked so hard for the capital, you don’t want to just dump it and don’t be blind about it. So that’s the first sign. A lot of people actually say and they put it out there and it’s easy to observe. This is a great sign to be aware of who is just trying, who’s new, who’s young and who’s learning and what have you. So recognize that you’re learning and let’s all learn together. Great stuff.
Point number two is the part that’s a little bit more silent. People are very silent about this, but people feel it very vividly and that is uncomfortable with losses. This is a classic sign that you are not an investor, you’re not yet investing: loss aversion. People don’t really talk about that. We’re going to spend some time to expound on this. The goal, of course… investing is to make money. It’s not to lose, but it is not improbable and you should be comfortable with losses. So we’ll expound on this after a word from our sponsor.
I think nobody invests to lose money. No matter what strategy they take, nobody’s goal, when investing, is to lose money but it is not impossible. In fact, it is pretty probable depending on what you take, what kind of strategies you go for, what assets you put your money in. There are always risk factors and risk factors are governed by probability and magnitude.
If you don’t understand risk as much yet, definitely check out the episodes that we did earlier about risk: TFC 85 – 3 Core Understanding of Risk to Improve Your Success Rate, and TFC 86 – What Are The Risk Factors that Matters to Retail Investors? I think those two episodes… I spent a lot effort, okay? A lot of effort to do those episodes, do all the research, read a lot of things about how to evaluate risk and why people say certain things are risky and how did people manage some of these things. Please check those out to be a little bit more aware of things.
Being uncomfortable with losses is a very clear sign that you’re not yet an investor, because we’ve put it out, it is not the goal to lose, but it is not improbable to lose. Some things are more probable. Some things are less probable. If you are following everybody, if you are in index funds, you’re in broadly diversified kind of things, you are following the average. You’re following the mean, the median. Generally, the strategy that average takes does not fail the goal of the average. It tends to be the case. Normal distributions suggest it.
When all your solutions and everything are optimized for the average, it tends to be at a success rate if you take on the average solution… will be very high. Because the goal is to make the 8%, 9%, 10%, that’s the average goal and the average strategy is to buy index funds, so naturally, it’s pretty optimized. Your probability of hitting it is very high.
But that does not mean there’s no chance of losing money in certain years or certain quarters and what have you. But also, if you choose to do a riskier investment strategy like if you pick your own stocks, you want to trade… ok people will debate whether trading is investing, if you only use some derivatives or you want to invest in the crypto space, NFTs (Non-Fungible Tokens) and some of the private investment structures like wine and all that, then the risk factors become a little bit higher.
Either way, you have to be comfortable with the reality that this is not an absolute situation like bao jiak (sure win). There’s no guarantee that you’re going to make money. There is a chance that you will lose money, but how much of a risk? How bad can it be? How serious is it? What’s the probability? Consult whoever that you are learning from and depending on which tool.
A lot of portfolios out there these days will put their risk factors… risk factor 36%, 24%, 12%, 10%. These risk factors essentially is the most probabilistic situation. The most highly, likely worse situation of their particular portfolio. So 36% will be a situation where there’s the highest loss, highest probable chance that the worst case is 36% losses.
These are some things to be aware of and you should, over time, learn to be more comfortable. Even I am still learning and working through some of these things. Of course, I’m definitely a lot better over the years, but yeah. You should be comfortable with losses and you should be comfortable and recognize what are the chances of losing money in the strategy that you choose.
Of course, that’s not the goal. It’s just about comfort. In other words, some people say “can you sleep?” The classic sign that you’re comfortable with your strategy and you’re comfortable with the potential losses is you can sleep. But for me, I think to be more accurate, it’s about your comfort of loss. That is one signal that you are not yet an investor, especially if you’re very uncomfortable, you cannot sleep and all that stuff. That is something to be aware of.
Honestly, my experience with a lot of these seasoned investors is when they lose money, they feel it. But they are not like fainting over it, to them it’s like “it’s my strategy. This is what I have decided, my most educated bet” and that’s it. So there is a level of probability, there is a little bit of this idea of betting and all which is probabilistic, but they do not lose sleep over it and they are comfortable with losses especially in a short period of time.
That means they recognize that maybe the market is not performing in line with what they are expecting or it is a time to tide through. So learn to be comfortable with losses and that really stems from understanding your strategy. If you understand your strategy, you understand where you’re trying to go, short term losses and some changes in the market should not affect you in general.
Which brings me to point number three, the third signal that you are not yet an investor is that you see investments as a math formula. Essentially, there is an accurate answer. There is a definitive answer. One plus one equals two. That is not the reality. To put it very bluntly, investing is not a deterministic model. It is more of a probabilistic model. I put these words, a little bit bombastic. I put them out: deterministic and probabilistic models so that you can go and spend more time to search and learn about it. It will help you understand. It’s a way of thinking.
Deterministic models generate the exact same outcome under a given set of initial conditions. Essentially, when you say something is deterministic, means every time you do the same thing, the same thing happens… guarantee it will happen.
Of course, there’s the whole discussion of how to change probabilistic to deterministic… okay, I’m not going to do it here, but the idea is investing is a lot more probabilistic than it is deterministic. If you are seeing investment as a formula, as a definite way to do it, like you do this, definitely you’ll get that, then you are in a very early stage of investment.
You are pretty much sold by a lot of these salespeople, a lot of these bankers are robo-advisors. “You do this, you get that. Do this, you get that.” It’s pretty problematic, I would say. It’s not accurate, it’s not realistic. There’s a lot of fallacies, especially the slippery slope fallacy and the straw man fallacy that is embedded in a lot of these kind of thought.
It’s pretty understandable why a lot of young investors or new investors harbour such a thought where they see investments as very deterministic and like a formula. If you think about it, your life, while it’s complicated, there’s some sort of repeatability if you are a labour. You go to work, you do some stuff, every month you get paid and you pay your bills and you save a certain amount. Everything is relatively repeatable. I’m not saying that every month is the same, you do the same thing every day, but it’s very predictable. In that sense, it sounds like “oh yeah, I just go to work and I’ll get paid.”
If you take this idea into investing, which is a lot more probabilistic, it’s very risky, very unhealthy because you are not realistic in your view of investing. Investment markets or capital does not work like labour. It is more probabilistic. This is something to be aware of and you need to train over time, and yes, I mean it. You need to train because there’s a different view of things. When you look at certain things, you know that it is deterministic.
If you put hot water in 3-in-1 coffee, it will come out to be a very lousy aromatic 3-in-1 coffee. It’s very clear. This will definitely happen, repeatable and deterministic, whereas some other things you’ve got to look at them in a probabilistic manner. What are the chances? What is the probability of something happening? What are the chances that it does not? What are the different spectrum that it sits on?
Understanding this tool will fundamentally change your outlook of a lot of things. Recognize that this is different and when you’re looking at capital, you got to train yourself to see in a probabilistic manner. We can definitely talk about this as we go along in the podcast. We’ve also touched on a lot of this mindset stuff in the other episodes, so definitely check them out.
I’m going to sum up today with the three signs that you are not yet an investor but I want to applaud you that you have started investing. Just be aware that you’re not yet an investor. You’ve got to learn and improve yourself. Number one is I’m doing it for fun. Nothing is really that fun in investing. It gets boring after a while but you find joy in boring things. It’s like I keep doing content, it gets boring after a while, but I find joy in doing the content. It is not fun and exciting anymore. It’s very nuanced, I can talk about it another time. But yes, if you are thinking of investing as “fun, I just try try”, it tends to be a protection mechanism for you just in case you don’t perform as well. In other words, you’re emulating other people hoping to perform like them, but you don’t actually know what they are doing in sufficient depth so be aware and go in and learn deeper.
Number two is uncomfortable with losses. Nobody invests to lose money but you should be comfortable with the idea of losing money, but how much is… you are comfortable? What is the probability? You look at the risk factors and understand them. These days, a lot of the portfolios put their risk factors out and you read them as the most highly likely of the worst loss case scenario. That’s something to be aware of.
Point number three is that seeing investment as a math formula. Essentially, seeing investment as a deterministic idea. Go and read about deterministic models and probabilistic models. Investment is more probabilistic than deterministic.
If you fall into all these different signs, then you know that hey, it’s good that you started, but you’re not there yet. Keep refining, keep training yourself to see it differently and become a better investor. I hope you learnt something useful today. See ya.
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Okay, so I hope you learnt something cool today. Maybe some of you guys are really more advanced already, you already crossed some of these hurdles which is great, but every time we cross the hurdles, we should still continue to be aware that hey, you know sometimes we cross already but we didn’t know it was a hurdle to begin with or we couldn’t put words to it, so I hope that after listening today, you have some of these ideas and some of these clearer words that you can put to some of the signals and help your friends along if they are trying to learn to invest and try to be better, become financially smarter. These are some things that they can definitely work on.
Good stuff. Next week. I’m going to share with you a little bit of stock ideas. Okay, I am generally not very open to share stock ideas because I think it’s probabilistic and if you make money, you may not thank me. But if you lose money… if you copy blindly and you lose money, they be like “haiya, this guy not credible one.” Very 吃力不讨好 (arduous and thankless task). It tends to… limited upsides, a lot of downsides. I tend not to want to talk about it, but I know a lot of people like this kind of content and you want to hear how I think about certain stocks.
So next week, I’m going to share with you three companies that have recently IPO-ed. Recently… I define them as within the year. Within the past year, they have IPO-ed and I’m definitely looking at them or I may have even opened a smaller position in them. I can share with you why I’ve done it. Yeah, let’s see you next week.
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