The most important quality in an investor is his ability to face all kinds of calamities and unpleasant events in the markets without giving up.
“Everyone has their eyes on the historical curve of the market, which is going up. However, to grow your money in the long term, you must first go through what the market makes us live in the short term. »
This is one of the lessons conveyed by author and investor Morgan Housel, who gave a virtual conference Thursday at noon at the invitation of CFA Montreal.
Morgan Housel, a partner at the venture capital firm Collaborative Fund, is the best-selling author of The Psychology of Money: Lessons on Wealth, Greed, and Happiness which has sold over 1.5 million copies worldwide.
His approach is to take an interest in various phenomena and models from different disciplines to identify useful lessons in the world of finance and for investors in general.
One of the often misunderstood aspects of investing in the power of time and the importance of compound interest in growing our assets, he says. Forces that cannot work in our favor if we buy and sell with short-term market movements.
When he started investing as a teenager, Morgan Housel admits to making “every mistake possible” by investing in penny stocks (penny stocks in English), highly volatile stocks that typically trade below $5.
“I thought day trading was the way to make money in the markets, and soon I lost all my money and learned my lesson. »
Morgan Housel points out that investment growth takes time, but time is a relative concept. For example, if you ask investors if they invest for the long term, many will answer “yes.”
“But if you ask them to define the ‘long term,’ many will tell you a year, whereas we know that historically, long term means 10 to 20 years minimum. It is very easy to underestimate the time you need to spend in the markets to put the odds in your favor. »
Mr. Housel is also interested in how money can make us happy. On this subject, the game is above all mental, since those who earn a higher salary but always spend more will never reach a state of satisfaction. A reality enhanced in a world where social networks bombard us with desirable images, where the possibilities of traveling, dining out and shopping are endless.
For example, the 1950s are often considered the perfect decade, when the market was up, jobs were plentiful, and families were large, notes Morgan Housel. However, adjusted for inflation, the average American household has twice as much income today as it did in the 1950s.
How can this change in perception be explained? “I think that in the 50s prosperity was better distributed. It was easy for people to control their expectations. Since then, our salaries have doubled, but our expectations have more than doubled. If your expectations increase faster than your income, you will never be satisfied with your finances. »
For the last decade, Morgan Housel has implemented a passive investment system in its portfolio that is based on the purchase of index-based exchange-traded funds (ETFs) that offer market returns, with low administration fees.
“That said, I don’t judge other investors who do it differently,” he adds. I don’t think there is only one way to invest. I found the strategy that works for me and my family, but that doesn’t mean there aren’t dozens of strategies that could work for you. »
Realizing that you have to invest for the long term, ideally for 25, 35, or even 80 years, in the case of Warren Buffett, can be extremely liberating, Morgan Housel concludes.
“You have no control over what the market will do in the next few weeks, months, or years, or what the economy will do in the short term. The only thing you control is your behavior. And when you understand that behavior is the key to investment success, that’s quite an optimistic understanding. »
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