The most important quality in an investor is his ability to face all kinds of calamities and unpleasant events in the markets without giving up.
Posted at 2:54 p.m.
“Everyone has their eyes on the historical curve of the market, which is going up. However, to grow your money in the long term, you must first go through what the market makes us live in the short term. »
This is one of the lessons transmitted by the author and investor Morgan Housel, who gave a virtual conference Thursday noon at the invitation of CFA Montreal.
A partner at venture capital firm Collaborative Fund, Morgan Housel is the bestselling author The Psychology of Money: Lessons on Wealth, Greed and Happinesswhich has sold more than 1.5 million copies worldwide.
His approach consists of taking an interest in several phenomena and models from different disciplines in order to identify useful lessons in the world of finance and for investors in general.
One of the often misunderstood aspects of investing is the power of time and the importance of compound interest in growing our assets, he says. Forces that cannot work in our favor if we buy and sell with short-term market movements.
When he started investing as a teenager, Morgan Housel admits to having made “every possible mistake” by investing in penny stocks (penny stocks in English), highly volatile stocks that typically trade below $5.
“I thought day trading was the way to make money in the markets, and I soon lost all my money and learned my lesson. »
Morgan Housel points out that investment growth takes time, but time is a relative concept. For example, if you ask investors if they invest for the long term, many will answer “yes”.
“But if you ask them to define ‘long term’, many will tell you one year, whereas we know that historically, long term means between 10 and 20 years at least. It’s very easy to underestimate the time you need to spend in the markets in order to put the odds in your favor. »
Mr. Housel is also interested in how money can make us happy. On this subject, the game is above all mental, since the person who earns a better salary but who always spends more will never arrive at a state of contentment. A heightened reality in a world where social media bombards us with desirable images, where the possibilities for travel, dining out and shopping are endless.
For example, the 1950s are often seen as the perfect decade, when the market was up, jobs were plentiful, families were big, notes Morgan Housel. Yet, adjusted for inflation, the average American household has twice as much income today as it did in the 1950s.
How can this shift in perception be explained? “I believe that in the 1950s, prosperity was better shared. It was easy for people to control their expectations. Since that time, our salaries have doubled, but our expectations have more than doubled. If your expectations are rising faster than your income, you will never be happy with your finances. »
Over the past decade, Morgan Housel has implemented a passive investment system in its portfolio that relies on the purchase of index-based exchange-traded funds (ETFs) that offer market returns, with fees low management.
“That said, I don’t judge other investors who do it differently,” he adds. I don’t believe there is just one way to invest. I found the strategy that works for me and my family, but that doesn’t mean there aren’t dozens of strategies that might work for you. »
Realizing that you have to invest for the long term – ideally for 25 years, 35 years, or even 80 years, in the case of Warren Buffett – can be extremely liberating, concludes Morgan Housel.
“You have no control over what the market is going to do in the weeks, months or years to come, or what the economy is going to do in the short term. The only thing you control is your own behavior. And when you understand that behavior is the key to investment success, that’s actually a pretty optimistic realization. »