What’s the most important thing to know about investing?
Is it values and valuation? No.
Economics and market history? Nope.
Stocks, bonds, and asset allocation? Uh-uh.
Corporate finance and fundamental analysis? Heavens, no.
All these things are important and something every investor should be familiar with. But the most important factor for any investor to “get” is the self-factor: our own personal objectives, limitations, insights, and personal – or personality – issues that helps us when we invest, and that might get in our way.
Our objectives are what we want our money to do for us, our goals and desires. Early in life we may want a “rainy day fund,” in case we need car repairs or home maintenance, or your job throws us a curve. A longer-term objective would be retirement planning or saving for college. Limitations are things outside of us that constrain us: time horizons, how often we need to tap into the cash, legal structures available for investors. If you’re a novice investor, you can’t just jump right into futures and options investing, for example. There are legal limitations.
Insights are personal resources we may have. Those can come from where we work, who our family might be, specialized knowledge we might have. Maybe you did research on DNA as an undergraduate, or you have a child working at a big bank. Chance are, you’ll get better a sense of that corporate culture from them than you would from reading SEC filings. Or you might know someone with an idea for a new business that you want to help get off the ground.
CRISPR Protein. Public Domain. Source: Wikimedia
Finally, there are personal factors. These are the mental and emotional biases that we all bring to our endeavors. You might have a conservative temperament and resist changing your views, even if new information becomes available. Or you might take the opposite approach, shifting your position quickly with the latest news. We need to understand the unique way that each of us looks at the world, to be self-aware. Maybe we tend to be too aggressive, or too timid. Neither approach is right or wrong, but they may or may not reinforce our long term financial objectives.
Investment management is self-management. Understanding ourselves – what each of us brings to the task – is crucial. There are lots of roads that can take us where we want to go. But some roads clearly fit our needs and resources better than others.
Douglas R. Tengdin, CFA
Charter Trust Company
“The Best Trust Company in New England”