The rules of sound investing are counter-intuitive
- Robin Powell
- Jul 29, 2024
- 3 min read
Why do so many people find investing hard? It’s often because the rules of sound investing run counter to what we’ve learned elsewhere in life. Strategies that work in business or career don’t always lead to success in financial markets.
RP STEVENS, author of The Sloth Investor, believes the best investment habits are simple and slow. In this video, he explains how complexity, high costs, overconfidence and constant action often hurt investors, while patience and simplicity help them succeed.
KEY TAKEAWAYS
1. Simplicity is effective
Many assume investing requires complex strategies and jargon, but a straightforward approach often performs better over time.
2. Low fees, high returns
Unlike most services, paying more in investing usually means getting less. Keeping costs low is one of the surest ways to boost returns.
3. Own the world
A globally diversified portfolio avoids reliance on any single region and offers more consistent performance across decades.
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TRANSCRIPT
Robin Powell: One of the reasons why people often struggle with investing is that some of the golden rules are counter-intuitive.
Behaviours that serve us well in some areas of life produce negative outcomes for investors.
RP Stevens points out several examples in his book, The Sloth Investor. One of them is that, in investing, simplicity beats complexity.
RP Stevens: It takes great skill, great learning to become an accomplished doctor or dentist and so on.
But for me, this is what I find fascinating about investing. Sadly, too many people see investing as a numbers game, as a realm of life that is full of complexity, jargon and, I really, really want to hammer that point home.
And I think I do in my book — the fact that a simple approach in investing really pays great dividends and this is why the tagline slogan, if you will, of my book is Simplifying Investing for all.
Another rule of sound investing that seems counter-intuitive is that the less you pay to invest, the higher your net returns are likely to be in the long run.
In most realms of life we think that if we pay more, we're going to get superior service. You know, so if I have a back problem, I know that if I see a specialist, if I pay a little bit more, I'm like you to get a little bit more of a superior service.
And I think we're accustomed to that as consumers in our contemporary world. But the great thing about this style of investing that you and I advocate is that in terms of index funds, if you're paying low fees, that, again, is going to bring with it a great award.
RP: A common misconception is that, as investors, we need to be on the lookout for the latest opportunities.
But none of us has a crystal ball, so the rational strategy is what RP Stevens calls an “own-the-world” approach.
RS: Globally diversified approach to investing is the way to go. Because while we're in some decades, North American equities are going to outperform. In other decades, a mate might be too far east. Who knows?
It could be South America very well. Be India. So I'm very much an advocate of a globally diversified approach to investing. You know, own everything.
RP: Finally, investors often assume that they need to act often and act quickly. In fact, humans have an in-built bias towards action.
In investing, it’s far more sensible to take a long-term view and, most of the time, do nothing.
RS: There's always geopolitical upheaval. There's always a crisis in terms of oil and, you know, wars and so on and so forth. But, you know, there's so much evidence to show that, you know, investing for the thick and free and for the ups and downs, the stock market, you just have to hang in there and, you know, remain inactive.
Don't look at your, you know, investing app on a daily basis. Just stay the course. And you know, that will bring with it great reward.
I jokingly touch upon this in my book that, you know, investors need a set of earmuffs and a blindfold to kind of tune out the noise and, you know, not be deterred by the headlines.
RP: So, don’t assume that the character traits that have served you well in, say, your professional or business career, will help you as an investor.
You may need a completely different approach to achieve the best results.
© The Evidence-Based Investor MMXXV.
