2 Two basic ways to go about investing

Investing doesn’t come natural to the human mind, it is prone to make a lot of mistakes.* This makes investing look superficially simple and be very hard at the same time. The primary difficulty lies not in finding a profitable portfolio strategy (all necessary resources are openly available), but in weeding through all the information out there and finding a realistic approach that fits you and incorporates methods of dealing with your behavioral biases, so that you can stick to it consistently.


In my mind there are two basic ways to go about investing:


First – play not to lose: keep it very simple and learn about a solid portfolio allocation. Write down your portfolio rules to avoid basic investment mistakes when things are emotionally charged in bull and bear markets. A good asset allocation is the major factor influencing investing outcome.
Best would be to outsource investment decisions, or have a fixed yearly maintenance date and otherwise look at your portfolio as seldom as possible. A low-fee Robo Advisor with a good allocation concept would do the trick. This would be a great goal, if you are not very interested in the process of investing or don´t want to spend a lot of time on it. Realistically it will still be hard not to chase the performance of the market. People tend to consistently do the wrong things at the wrong time and buy near market tops, infected by greed and sell in panic near market lows.


Second – treat investing like a profession or serious endeavour (similar to mastering a musical instrument) and learn about it in depth. This will take as much time and effort as gaining proficiency in any difficult area (think 10.000 hour rule). In the end, this has the potential to form a sustainable education – beneficial for the rest of ones life, while being intellectually stimulating, intricate and interesting.
Providing orientation in going down this path is what this guide is about.


I don´t think there is a short cut. On the contrary, if I can judge from my own experience, the first approach should yield returns in line with the market averages, if mistakes can be avoided. Going down the second path will very likely reduce returns (sometimes drastically) for an extended period of time, before improvement materializes.




*The seminal book on behavioral biases is „Thinking Fast and Slow“ by Daniel Kahneman

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