One of the most appealing things about investing, at least in principle, is that instead of working for your money, your money is working for you.
But don’t fool yourself; if you’re going to be a stock-picker you’ve got to be prepared to put in the hard yards.
Sifting through hundreds (if not thousands) of individual companies, identifying the best candidates, and keeping on top of them is no small feat. And then you have to manage each holding as part of a broader portfolio too, adjusting weightings and switching things out as and when is necessary. Oh, and it also helps to have an eye on the broader economic landscape.
There’s a very steep learning curve too, especially when you’re just starting out. That alone will tend to deter most people, especially when you can still achieve reasonable results with a more passive approach.
So why do it?
The obvious answer is because you have the potential for better than average returns. Catching a monster can have truly life changing implications. Even a 2-3% average annual outperformance can add up to a significant difference over time.
But that’s far from guaranteed. In fact, statistically speaking, most investors (even the professionals) won’t keep up with a low-cost, broad based index fund. And given the work involved, the likelihood of even a modest underperformance could make you question whether it’s worth all the bother.
It’s not like you just need to weigh up your prospects against the hard graft of research and analysis either; the emotional burden we bear as equity investors is a very real consideration too. No matter how smart, experienced and well-prepared you are, volatility will be your constant companion. And you should expect your fair share of unfortunate surprises too.
That’s why it is important that money isn’t your only motivation.
A deep curiosity about business, finance and the wider world is needed to fuel the ongoing drive to learn and improve as an investor. With genuine passion, the process becomes captivating rather than laborious.
And because knowledge tends to compound, things tend to get easier with time. The longer you’ve been investing, and the more time you’ve sunk into understanding various companies and sectors, the more easily you can apply heuristics, spot patterns and identify the key dynamics at play.
You’re just going to more efficiently process and synthesise new information if it relates to something you’ve already taken the time to understand.
There’s a lot of depth to business, finance and investing too, and it’s all directly related the complexity of the wider world. That makes the process of capital allocation endlessly fascinating, and it’s something that tends to becomes more captivating as your experience and understanding grow.
Ultimately, the most successful investors are those who embrace the challenges and find joy in the continuous learning and discovery that active investing demands. If you can do that, you’ll not only be well-positioned for big returns, but you’ll find the journey just as rewarding as the destination.
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