The anonymous founder of The Investment Blog (IB) is passionate about investing, not just because of the financial benefits, but also because the opportunity it affords people to better understand the world.
We recently checked in with IB and asked about the toughest investment lessons the blogger has learned over the years. The response? The hardest lesson was overcoming difficult situations and learning how to accept full responsibility for failure.
"With investing, it's easy to blame the markets or 'corrupt' bankers," IB says. "It's hard to say 'I messed up...and I messed up big!'"
The key to overcoming this is to recognize and accept your mistakes and then learn as much as you can from the experiences to move on and improve.
"It's applicable to investing, but maybe even more so in everyday life!" IB says.
Here, IB discusses everything from how the blogger got interested in investing to better understanding investment principals to why the blogger wants to be more like Warren Buffett. Read on:
Can you tell us the story behind The Investment Blog?
My blog first started as a way to capture and share some of my thoughts and experiences on investing and personal finance.
Over time the blog focused on investing rather than personal finance, as it's my area of interest and expertise. I feel that it also helps to fill a void. There are a lot great of personal finance blogs out there, but far fewer blogs that talk about investing.
In my articles, I usually talk about the concepts, thought processes and methods that I've used successfully in investing, hoping that I can help other investors achieve similar successes.
I also found that I actually enjoy writing about investing, but I'm not making it a career. It's a hobby and an outlet for me to help people see what they aren't seeing or think in a way they aren't thinking.
How did you become so passionate about investing?
There are two things, really. The first is that I love learning about the world around us and how it works. Investing provides a great window into some of those aspects, especially when learning about specific businesses and the industries they operate in.
The second goes a bit deeper and is more personal. People often talk about investing as a way to build wealth. But that's more of a mechanical byproduct of investing, not an end goal. The real importance is that the results of investing give you freedom and choices in life, and I believe that's worth being passionate about!
You write that you want to be Warren Buffett...what's been your strategy for realizing that goal?
I admire Warren Buffett, but I wouldn't want to be him exactly (the billionaire CEO of a giant conglomerate). I would like to be like him in terms of being a savvy and skilled investor. Over the years, I also came to admire his attitude in life, and the very respectful way in which he treats other people, regardless of their social status. I also admire his polymath business partner Charlie Munger and his "worldly wisdom," which can be applied to almost all aspects of life. They both share their valuable knowledge openly and freely.
My strategy for realizing the investing aspect is to not only learn how Buffett and Munger select investments, but also to understand their larger thought process. That way, I can consistently make smart decisions in both business and life. My strategy for the second part is emulating their attitude and mindset.
What have been some of your favorite resources for learning about investing?
My favorite resource has been Buffett's writings (reports and letters to shareholders, Op Ed pieces, etc.). They are a rich treasure trove of practical business lessons and investment specific advice. It's really tough to find material that is better than this collection. They are free and available on Berkshire's website.
Another favorite resource has been business books, often those written by entrepreneurial CEOs.
I also like listening to conference calls, as they are extremely insightful. Often, management talks about the intricate details of their businesses, their industry and changing trends.
What are some basic investment principles you think all new investors should be aware of?
All investors should be aware of and understand the concepts of value, investment risk and margin of safety.
Value is the real worth of something. For stocks it's the value of the entire business, not the selling price. People understand this concept when they go shopping, but not when they buy investments.
Investment risk is the possibility of losing your investment principal. But this is often confused with volatility and the movement of prices or the market.
Margin of safety is how much room you have for error when analyzing investment opportunities.
I haven't found a better detailed explanation of these concepts than in the classic book The Intelligent Investor, by Benjamin Graham (Buffett's teacher).
What are the most common misconceptions or myths about investing that you hear? Can you set the record straight on them?
I often hear people say that you need a lot of money in order to invest. Nothing can be further from the truth. Knowledge is the real barrier to investing. You need knowledge, and a little bit of money. Knowledge is what allows you to grow a little bit of money into a large amount of money.
Another myth is diversification. Conventional wisdom has taught people that you should use broad portfolio diversification in order to reduce risk. However, as we saw during the recent financial crisis, a well-diversified portfolio consisting of stocks in many industries and sectors, as well as government and corporate bonds, did not protect the investor from declining prices. They all declined in unison. The only real way to reduce risk is to increase your knowledge!
What are some good habits you think any smart investor should get into?
Some good habits for any smart investor are continual learning, independent thinking, self-assessment/awareness, emotional self-control, patience and discipline. I think if an investor can cover these, they'll be in great shape.
What are your favorite types of investments?
My favorite type of investments are stocks. With hundreds of stocks listed on each of the major North American stock exchanges, there is such a wide variety to choose from. This also means there are many opportunities for mispricing. With stocks there is a low barrier to entry. You don't need a lot of capital to get started, and it's easy to learn how to invest in them. They also allow you to own a slice of some of the greatest businesses in the world!
Although stocks are my favorite, that isn't to say that they are the best type of investment. I don't think there is a type that will be the best in all situations or for all time periods. But with stocks you can find good opportunities in both bull and bear markets.
When should someone enlist the help of a financial professional when investing? What should they look for in an advisor?
That's a very tough question. I believe everyone should take on the role of investing their own assets, but it's also very difficult to find knowledgeable and competent professionals. An advisor in general is someone who can help to fill in the knowledge gaps that you might have. If someone is to enlist the help of an advisor at the beginning, they should look for one who is interested in the longer-term focus of helping you learn how to invest, rather than selling you financial products.
For those who may have a lot of difficulty investing on their own due to health reasons or other limitations, they should still look for an advisor who has the attitude of trying to help you learn. These types of advisors will usually have your best interests in mind, but also be competent enough to help you.
If someone is enlisting the help of a professional money manager, they should look for a manager who only gets paid when they make money, not when they don't. I only think it's fair that there be some form of direct responsibility for the investment decisions made.