I am sure you have seen a news story or heard of someone who got lucky and went all in on a penny stock or guessed that a certain stock is the next big thing and got rich. Congratulations to that person, you essentially won the lottery. It is a very seductive notion to think that not only is it possible to replicate that, but it is common as well. This is the problem of the world we live in where we are inundated with social media anecdotes of someone getting lucky. You might feel anxious, upset, or even angry that you see these social media posts and wonder why you can’t replicate them. These feelings can be described by the pop culture term FoMO (Fear of Missing Out). Scientists have noted the strong correlation between FoMO and a decline in mental health.[1] It is not surprising then when we feel terrible that others are seemingly becoming rich overnight and we’re not. But the reality is that it isn’t probable. Famous investor Howard Marks sums this up nicely, “investing involves hidden information, luck, and skill. So, if an investor does not have much skill, the investor would be down to luck and hidden information alone. Then, investing becomes a coin toss.”[2] Or put another way, you are up against artificial intelligence (AI), money managers with access to technology that you are not privy to, and an industry that has decades of experience that can be deployed at will. Essentially, the odds are not stacked in your favour. Compound that with the tumultuous feeling of volatility (the change of a stock price around the mean)[3] and the likelihood of you hitting it big is so small compared to being flushed out of the market. Sounds pretty dire, doesn’t it? Well, the good news is you don’t need to be lucky; you don’t need a lot of skill; you don’t need access to expensive AI capabilities; you just need to be consistent. And what exactly does consistency entail? It is doing the opposite of luck. It is investing regularly without emotion, ignoring the volatility of the stock market, and ignoring news headlines (as I write this, headlines are full of geopolitical uncertainty and recession fears, which honestly, you could drop into almost any decade and they’d fit). The key is to make the process robotic. Have an automatic transfer from your bank account to your brokerage account (remember you opened one up from the last lesson). Pick a schedule, any one will do. Every week? Bi-weekly? Monthly? You get the idea. The more we try to involve ourselves at the beginning of our investing journey, the more likely we are going to make mistakes and allow our emotions to take the wheel. The point is that no matter what is happening around you, money is being added to your brokerage account. Think of it like drill. We practice our basic skills routinely so that they become second nature to use and they’re automatic when we need them most. It is the same idea for consistency with your investments. Add money on a schedule then leave it alone. That’s it.
When we leave things alone and let them grow, they can turn into a magnificent creation. It is no different than your pension. You automatically contribute to it every paycheque and you don’t access it until after 25+ years. The automation and consistency allow it to compound over time and create a benefit for you for the rest of your life. If we allow ourselves to get out of our own way and emulate that process, we can create a nest egg that’s even greater than our pension.
Next, we’ll look at one phenomenon that changes everything about how you think about time and money, compounding.
[1] Gupta M, Sharma A. Fear of missing out: A brief overview of origin, theoretical underpinnings and relationship with mental health. World J Clin Cases. 2021 Jul 6;9(19):4881-4889. doi: 10.12998/wjcc.v9.i19.4881. PMID: 34307542; PMCID: PMC8283615.
[2] González Pozo, E. R. (2020). An argument against stock-picking and market-timing: An empirical approach. Investigación & Desarrollo, 20(2), 93-106.
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