Success and investing

An article in Motley Fool outlines the stages of a stock market bubble. Something happens (displacement) that creates the change.

We would think that we learn from the past, but as the chart below from Franklin Templeton shows, we can easily get sucked into the hype.  

Two books in recent years have transformed the way I think about investing: Chris Budd's “The Financial Wellbeing Book” and Carl Richards' “The One Page Financial Plan”.

These books explore our relationship with money and what is important to us.

This brings us back to the question of what success is. We all love a story; when discussing money, it feels easier to tell people how successful we are. Below is the share price of Amazon. On 1 May 2009, the price was $3.95. We can see how quickly the share price rose over the last decade; I held Amazon around 2013 and sold out after making about a 40% return. If I held onto it, then my return would have been greater.

Another share I held was Lloyds; I purchased this around 2011 and, at one point, sat on a healthy profit. When I eventually sold, I lost money.

One further example was Boohoo. I purchased near the launch at around 50p, and it collapsed to around 25p, and then I sold.

While managing my pension and constantly checking for growth, I concluded that I had an unhealthy relationship with money, and it became more about “speculation” than investment.

I realised that in everything I did as part of my job, I ignored myself! Reading the books mentioned, I learned the importance of understanding your goals. I love this diagram from Carl Richards.

I have learned that I feel calmer when someone else is in charge of my money. For me, success in investing is about achieving my goals. Goals are personal to us. We likely have different goals and events happen that can change the direction of travel. As we learned recently, my job suddenly ended so the plans and goals we had had to change to reflect this.

Again, using a chart from Carl Richards emphasises this point. It is a continual process. Things change and we must regularly review.

Over the last few years I have invested within the portfolios I managed for clients. It is far from exciting, but there is a discipline and process that avoids speculation. My ultimate goal is to grow my pension slowly over time. One book I read asked how much I could afford to lose; the point was that if you want to speculate, only speculate on what you can afford to lose. In our case, that figure is zero.

To quote Warren Buffett, the guide to successful investment is simple but requires discipline. The first step is always to know your goals, once you know the goals the investments can fit around them.

Warren Buffett says, “What you need is the temperament to control the urges that get other people into trouble in investing”.

In summary, the world encourages speculation; we have created a fear of missing out and are in danger of assuming money is the route to happiness. Money helps us achieve our goals, but if we allow money to control us, then there is a danger that we will never achieve these goals. So if we want to succeed, we need to understand what makes us happy and what we want; these are our goals. Once we have this, we can build a strategy to achieve those. For some, like me, you need a financial planner to guide you; for others, you have the discipline to follow that path by yourself.

I’ve always liked this diagram because it sums up my approach and why I have someone in the middle. But we are not all the same; our goals are personal to us, so how we approach them will be different. The key is that money should not drive us; our goals are what make for successful investing.