When investing in shares we are driven by two fears: The fear of getting in at the exactly the wrong time and the fear of missing out. After fighting these fears for months, you make the jump and invest some funds. Then you start watching the funds like a hawk. If it goes up, you are ecstatic and when it drops, the family doesn’t get ice-cream for weeks. If Murphy has anything to do with it, the price will drop significantly the very next day.
You started investing because you have a dream of a better future. The road to that dream is winding with a lot of emotional ups and downs. If you are investing in long-term index funds and unit trusts, you can spare yourself all those emotions by simply investing every month without checking the returns four times a day.
Types of share investors
The value investor
The value investor does fundamental analysis to spot the shares that will do well in the long run. A good example is our friend Warren Buffet. Although some might argue that he invests in good companies selling at a low price rather than determining the intrinsic value.
If you are a value investor, the price today should not matter to you. You know why you bought the share and only care about the price years from now. Make a list of why you buy shares when you do buy them. Every time you get the urge to sell it, go back to those reasons and see if anything has changed. The price dropping is not a good enough reason. Value investors only sell when something fundamentally changes in the company.
The Exchange Traded Fund (ETF) investor
The ETF investor accepts that fund managers only have a 9% chance of beating the market. You can read my article performance of unit trusts in South Africa for more on this. Therefore, they buy the market and then pour themselves another glass of wine. ETFs are self-correcting, cheap and performs extremely well in the long run.
You do not have to do anything other than choose the ETFs that you are investing in. This decision happens a few times until you are confident enough with your portfolio to stick to your strategy. Some of the most popular ETF providers are Satrix, Coreshares and Ashburton. You can’t change the shares contained in the ETF, so you do not need to micromanage your holdings.
The Unit Trust (UT) investor
The UT investor believes that fund managers will be able to outperform the market. They trust that the shares (properties, bonds and cash) in a UT have been picked by the fund manager to play a specific role in their portfolio and buying the market just feels too simple. They don’t mind paying the extra fees for someone to make the decisions for them. If this is how you are investing, you need to trust your fund manager and financial planner with the investments they make on your behalf. That is what you pay them for. If you are using a financial planner, don’t skip the yearly meetings (yes, I know you’d rather watch that cooking show). Some of the popular UT providers are Coronation and Allan Gray.
The day-trader and swing-trader
I must admit, this is not something I have looked into enough to cast an opinion. These strategies hinge on trading market patterns and daily news events. What I do know though, is that I definitely do not have the time or nerves to give this a go (I chewed my nails as a kid and do not want to go there again). However, if this is your trading strategy, you are the exception to the “do not look at your shares” rule.
What you should be doing?
There are decisions you need to make continually. These include whether you should diversify into international investments and how much property you want in your portfolio. However, over-reacting by selling all your shares only to buy something else every two months, is not part of the strategy. It is easy to make this mistake in the investing climate we are experiencing now.
The most important thing you need to know today is that the market is not rational in the short-term. You are not going to cash out today, so the price at this exact moment is irrelevant. Review and re-balance your portfolio every year. Make sure your portfolio is still aligned with where you are heading in life.
I am a firm believer that someone can only teach you how to get where they are. Ignore everyone else telling you that the sky is falling, you don’t need that negativity in your life. The best investors aren’t the ones that claim to time the market perfectly, it’s the ones that do absolutely nothing when everyone else is panicking. So, stop staring at your investments.
Be safe out there,
Quote of the week“When a fellow says it ain’t the money but the principle of the thing, it’s the money.” – Artemus Ward Click To Tweet
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