Learning to be patient in investing in the stockmarket

Learning to be patient in investing in the stockmarket

Some of you may not have a lot of interest in soccer but I feel there are many lessons we can learn from the game when it comes to investing.

Betting is the action of gambling money on the outcome of an unpredictable event such as a soccer game.

And the truth is that investing is betting no matter how it is dressed up.

The management of money is about reducing risk and boosting opportunity.

Starting out in investment banking in London, I have now been in the investment industry for over 20 years.

That has taught me some hard lessons about the failures of trying to beat the market.

It taught me the need for patience.

The bookmakers now fancy Manchester City very strongly, having all but written them off three months ago.

Investing is the same and you need to be patient.

The lesson is if someone placed a bet on Manchester City and Liverpool to come in the top two positions, in any order, they would have had a nice payout a few weeks ago. 

The odds at the time would not have been as good but this is where greed gets the better of many.

Investors need to understand that the risk-free rate of return is zero at present.

I have written here before about my gambles on cryptocurrencies and trying, unsuccessfully so far, to pick winners from a pool of outsiders.

This is incredibly difficult as anyone suffering in years of soccer or lotto syndicates can testify. 

The Premier League winners are dominated by the big names and apart from the 2015-2016 season has rarely not been won by the top six teams.

The lesson here is that there is no free lunch.

When investing, plan for the worst and get independent advice: I wouldn’t ask a Liverpool fan who is going to win the league, for example.

In the same way, many clients become obsessed with property ownership for investment purposes.

They can only remember the very recent good times. 

This is called ‘anchor bias’, which involves basing decisions on the past and placing too much emphasis on recent outcomes.

Some friends have done well in betting and some have done well out of the stockmarket over the last nine to 10 years.

It took the stockmarkets six years to recover from the huge losses during the crash a decade ago.

And anyone can pick a winner in a bull market.

It is uncertain times of increased volatility in the market that will catch people out. There are many stock- market companies that fit this category.

Legendary investor Warren Buffett famously coined the phrase that the stockmarket is ‘a relocation centre’ which moves money “from the active to the patient.”

The virtues of patience can pay off.

Nick Charalambous is managing director of Alpha Wealth.

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