Wednesday, November 10, 2021

Investing is scalable

A few years ago, I read about an article, that outlined the attitudes of investors at different levels of net worth.

According to an investors poll in Investor's Business Daily 

- 27% of investors with networth below $100,000 used futures and options as their primary trading investment vehicles, 

- Only 1 % of investors with networth above $500,000 used futures and options

The poll also showed that:

- 15 % of investors with less than five years of experience used futures and options

- However only 3 percent of investors with more than five years of investing experience used futures and options


Nancy Gondo, "New Investors Consider Themselves Aggressive," Investor's Business Daily,

September 25, 1998.

It seemed that the investors with a smaller brokerage account were more likely to engage in taking on more risks than the ones with a larger dollar amounts in their net worths. Unfortunately, many undercapitalized investors treat investing like gambling, trying to strike it rich quick.

They end up treating it like gambling, and looking for quick gains that rarely happen. In the process, they are likely to lose money chasing tips and also lose valuable time chasing quick gains. 

In my opinion, this is the wrong approach to take. It's better to start off with a set of guiding principles, focusing on long-term investing in blue chips, diversification, keeping costs low and investing through thick or thin, rather than speculating and trying to get rich quickly. The prudent set of guiding principles would hopefully pay dividends for decades down the road. The lessons should be evergreen, and helpful in investing more money, as the investor gains more experience, learns from it, and manages more and more money as they work towards their retirement number.

Some people believe that you should focus more on your career in the initial phases, and not worry about investing. That's because for most folks out there, your lifetime career earnings are your largest asset. While I agree in principle that you should focus on increasing your career earnings potential, I disagree on waiting to learn about investing and waiting to start investing. I am all for investing in yourself, but I also believe in learning about investing early in the game, when you have less money at work. Investing early can help a lot, because you can compound for a longer period of time. The knowledge accumulated from managing the first $100 will compound, and be as applicable as your income and net worth grows over time.

I believe that Investing is a highly scalable activity. 

If you learn how to control emotions and invest prudently with your first $1,000 or $10,000, you would be prepared when you have $100,000 or more. It is a learning curve of course, which is why it is important to make mistakes early in the game, when you have less at stake and it is easier to recover.

As the amount you invest increases, you also learn more. Investing is a cumulative learning process, which is why if you stick to your strategy, you would likely have a better grasp of things later down the road, than when you first started investing.

In my investing, I have taken the opposite approach to the get rich quick crowd. I have invested my money in a very similar fashion for close to 15 years now. I invested my first $1,000 the same way I invested my last $1,000 this month.

Basically, I invest in several dividend growth stocks every month, when I have money to invest. I also contribute to my retirement plan at work, and buy a few low cost index funds with every paycheck. 

Over time I have improved, and the numbers have changed, but in its core, my regular investing is what has helped me get to where I am today.

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