How to create an environment conducive to investing

Aug 22, 2023

I love what Graham Hand, editorial director of Morningstar Australia recently wrote.

Investing is like posting on Instagram. People only tell their followers about the good times. The photos from the holiday ignore the hours stuck in airports, dragging heavy bags around looking for a hotel and the daily search for a decent place to eat. Online, it’s all smiles and fun.

The investing equivalent is buying Apple or Tesla or Afterpay in the early days, loading up on equities at the bottom of the pandemic, selling before the GFC hit or exiting fixed rate bonds before the rate rises of 2022. The disappearing small tech company is forgotten, while the insider tip from a mate rarely works out.

Graham’s solution:

  • Decide on your own plan, what works for you and avoid comparisons.
  • Tread your own path as only you know your needs, worries and risk appetite.

So how do we get there?

Here’s what investor and author Guy Spier has to say. All the information has been sourced from a conversation he had with my colleague Jason Stipp in Chicago, a decade ago. And from a book he authored – The Education of a Value Investor: My Transformative Quest For Wealth, Wisdom, And Enlightenment.

What steps can individual investors take to set themselves up for success?

  • Reduce freedom of action.

Set a time window when you're going to give market orders, and ideally let that time window be when the market is closed so the market is not influencing you. Make that maybe an hour or two a day, and that's the time when you make investment decisions, and otherwise you leave it alone.

  • Be apart.

I suffered, my returns suffered, and my business suffered because I was spending every day in a building full of financial people. Warren Buffett is not at the center of the financial universe. Not only is Warren Buffett in Omaha, but the building out of which he works is a building which is dedicated to constructing things. It is important to be apart from people who are in this business day in and day out.

What I have done with my business is I've moved it away from an institutional business towards more of a business that looks more like somebody running their own portfolio because I realized I'd be able to make better investment decisions.

(Moving to a quiet town outside Zurich, he focuses his energy on creating the ideal environment in which to invest.)

  • Survive in the age of information.

In his book, Spier talks about how he has split his office into a busy room with phones and computers and a library where no electronic devices are allowed. The library is meant for immersive reading and assimilating thoughts.

To draw an analogy from biology, in the absence of a good digestive system that converts foods into useful nutrients, information consumption is just Garbage In Garbage Out. Remember, Archimedes was not hunched over his smartphone but was taking a long soaking bath when that flash of brilliance came. You need to walk away from the daily does of information to get Eureka moments.

  • Individual investors have an advantage.

There are no investors asking you why your portfolio is not doing well. There is no board demanding that you buy or sell a stock. The media is not hounding you.

Individual investors often feel that they are at a disadvantage to the professional investors. In fact, individual investors, provided they're not leveraged and investing with long-term money, have some profound advantages.

  • Create an environment that is be conducive to good investing.

The goal isn’t to be smarter, it is to act more rationally. It’s to construct an environment in which my brain is not subjected to quite such an extreme barrage of distraction and disturbing forces that can exacerbate my irrationality. I hope that I can do it justice here because it’s radically improved my approach to investing, while also bringing a happier and calmer life … The constant barrage of bad news could easily have exacerbated my irrational tendencies, when what I needed most was to screen out the noise and focus on the long-term health of my portfolio.

  • Comparisons are distractions.

Have your own personal scorecard.

You should judge yourself by your own personal standards and proactively work towards self-improvement rather than indulging in comparisons with the standards and accomplishments set by other investors … Investing has a way of exposing our psychological fault lines. However, you have to live your own life rather than follow the dictum put forth by famous names.

More on Behavioural Finance

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