The Dream vs. Reality

I naturally spend a lot of time daydreaming. It’s fun to think about what my life could be, or has been, or may become. Like, what if I decided to sell everything I own, buy a van, and live in the mountains? Or, what if I moved to New York, got a job at a swanky cafe in Manhattan, and spent my time hanging around jazz bars and writing poetry? What if I left the country all together and bought a flat in London?

Call me a narcissist, but hey, it’s my brain. I get to daydream about whatever I want.

Investing has since fueled some of these daydreams. To me, investing means stocking money away now so that I’ll have more money in the future. If you throw your cash into a seed, watch the seed for ten years without poking it, or uprooting it, or overwatering it, one day, you’ll have a tree!

Okay, so not my best analogy, but you get what I mean.

Anyway, there is a psychology at play when you put money into a particular stock. Investing my cash into a company means that I support it, right? I buy a Coke over a Pepsi because I like Coke more and I support Coke more than I do Pepsi. Or, maybe I’d buy a La Croix because I think sparkling water is healthier than soda, and so I would be supporting La Croix.

By buying a stock, you are supporting a company. By supporting a company, you probably also believe in that company. If you believe in that company, you probably also think that company will continue to do well. If you think that company will continue to do well, you probably assume that the stock will continue to go up. That’s what I’m talking about. That’s where the psychology comes into play.

Why would I buy a company if I expect it to go down? Even if I know there are factors that are making, or may make, the stock price go down, by buying into a company, I will subconsciously root for the stock price to go up. This concept is well known in the investing world, and it gets a lot of investors, novice or not, into trouble.

So, I buy a little stock seed. I expect the price to go up; I believe the price will go up. I watch my little stock seed, I poke it, I water it, I uproot it with bated breath, and then…

… The stock price goes down.

Expected? You can’t blame a girl for dreaming.

Patience is Key

One of Warren Buffett’s most notorious sayings is, “Rule #1, don’t lose money. Rule #2, don’t forget Rule #1”.

This is a good way to view investing I think. The very last thing I want to do is throw my money to the wind. I don’t want to bet, or guess, or let my human psychology influence my practical decision making. I want to calculate informed decisions with a margin of safety. I want to plant a seed now and feel confident that, even if something goes wrong, that seed will still become a tree in the future.

For that reason, I think the most important, and possibly hardest lesson to learn in investing is: Patience.

A stock price is always just as likely to go up as it is to go down. Even if I think the price will go up, or I really hope the price will go up, the stock will do what it wants. The market doesn’t have to listen to measly humans. The market is a beast, a gremlin, an emotional, unpredictable, tantrum child just waiting to throw a fit. Unfortunately, no amount of manifesting, hoping, or praying on my part will change that.

The good thing is, I don’t ever have to buy a stock. If I don’t buy, I won’t lose money. Simple as that.

Learning The Hard Way

This was a difficult lesson for me to learn. The thought of buying something now that has the potential to grow into something big in the future was extremely exciting to me. It still is.

When I buy a piece of a company that I believe in, I feel like I am fueling my future. Current me may have to exist on ramen and sweet potatoes, but future me will have the money to go to France! Imagine, sitting at un pittoresque restaurant, avec un croissant et un café…

Where was I?

Right… Stocks.

You see, I initially wanted to generate a return so badly that I would buy a stock prematurely. I would either skimp on the research, or buy the stock at a premium, or otherwise throw some cash into an unpredictable company. I knew that all the signs pointed toward “bad idea”, but I would throw my money in anyway. Why? I thought the only way to make money was to invest it.

Rule #1, don’t lose money.

Unfortunately, once I threw money into a stock, my psychology would take over. Having a stake in a company would make me believe, with utter most certainty, that my investment would increase in value and the stock price would go up. Even if I knew there was an issue with the company, or that I had bought the stock overpriced, I would feel certain that it would still make me money in the long run.

Rule #2, don’t forget rule #1.

Instead of watching the stock price go up, I often watched it tank after a few months or so. Sometimes the stock would crawl it’s way back up, sometimes it wouldn’t. To a novice investor, watching your money evaporate to the market gods is devastating.

So, the hardest lesson I’ve had to learn investing… Wait.

By the way, it hasn’t gotten any easier. I still want to buy now, ask questions later. However, since making a few avoidable mistakes, I now do my best to spend the time to conduct the proper research. I try to learn the good, the bad, and the ugly about any company I hope to plant a seed in. I try to understand the value, calculate a margin of safety price, then… Wait. If all else fails, I don’t invest.

I may not be able to fuel my daydreams in the short term, but I (will hopefully) have a greater chance of actually making money in the long term. Hey, this is why we invest right? To make money in the long term?

Sure. Let’s go with that.