My Beliefs & Biases

Investing

Investing is when we put our resources into something that's expected to grow in value. That something doesn't have to be money, but that will be our focus for this discussion. A monetary investment must grow in monetary value; so it must outpace inflation — otherwise, it's not an investment.

There are plenty of places for money to look like it's growing while actually losing value. Even though we take advantage of things like treasury bonds and CDs, these aren't investments — they're "cash-equivalents."

A monetary investment inherently affords us some inconvenience. This most often means "volatility" — the idea that funds go up and down (and might even be down when we need the money). By preparing for this, we can invest with confidence.

Do We Really Need to Invest?

Is investing a necessity? A requirement? I don't think we're commanded to invest, similarly to how I don't think we're commanded to give a certain percentage of our income. I don't see the parable of the talents as a requirement to participate in the stock market (or any other investment for that matter).

But I do think that we're told to make use of what's been given to us. Money, time, health, etc. And money is meant to be spent — now or later. If it's not being used now (or in the near future), I believe that "idle" money should be positioned for growth, until a time when it is to be used.

How Do We Invest?

There are many investment "avenues" available to us. We might own our own business. We might purchase real estate. We might invest in market funds.

Whatever your vehicle of choice, ensure that it is indeed growing (in relation to inflation), and that the risk-reward is appropriate for you. Owning your own business is far riskier than investing in other people's businesses, but also has the potential to be far more rewarding.

The most popular investments are businesses: whether you own a business directly, or you own tiny pieces of thousands of businesses around the world. I primarily help with the latter.

The Stock Market

The stock market is a marketplace where businesses sell their ownership to investors worldwide. This allows companies to raise capital for growth and gives investor the opportunity to increase their wealth.

Can We Beat the Stock Market?

I subscribe to the data we have from SPIVA, a study that compared the performance of various fund managers against market benchmarks. According to SPIVA, beating the market is so difficult, not even the professionals are very good at it.

The above chart shows how many fund managers failed to even meet the market benchmark they set themself against. As you can see, 85-95% of managers have underperformed the market over the past 20 years. And these guys are the pros.

Is it possible to beat the market? Yes. People have done it — I attribute that to luck.

Is it likely that someone will outperform consistently over the next 30 years? No way.

My Investment Philosophy

Due to the above (and other studies), I don't believe investors should attempt to beat the stock market. Rather, investors should aim to capture the returns that the market makes freely available to us, and to follow these 3 criteria as we do: investments that are long-term, low-cost, and diversified.

Long-Term — The longer you hold an investment, the less likely you'll be negatively impacted by volatility. The holding period should be reasonably long enough to expect positive returns.

Low-Cost — Many funds charge high fees, which are unnecessary and eat away at your returns. I don't invest in funds that come with a load fee, and I try to keep the expense ratio as low as possible.

Diversified — Diversification is the process of spreading your investments across different asset classes and industries. This helps to reduce the risk of your portfolio by reducing the impact of any one investment or asset class performing poorly.