Do you believe you're investing when you're actually gambling?
Are you sure?
I will come across people or clients from time to time that believe they are investing. However, they are actually gambling. Could this be you?
There is a HUGE difference in mindset between the two and it may not be what you think. If you're a business owner, this applies to you just as much!
Here's the 6 warning signs to determine whether you're an investor or a gambler, posing as an investor.
- No rules - Most people have NO rules. If you don't have any rules, you are a gambler. No, saying, "I only invest in things that make me money" is not even close. Rules are never broken. Remember the movie "Pirates of the Carribbean?" Captain Barbosa referenced the Pirate Code when he discredited it by saying, "The code is not so much a set of rules as they are guidelines (said with a cool pirate accent)." Rules are absolutes. For example, one of my rules is: "Never make a decision in scarcity (feelings of fear, doubt, greed, impatience, etc)." I will wait to make a decision until I feel calm and confident. This ties in with my rule "When in doubt, stay out."
- You invest in things you can't control - Do you invest in things you control in your business? Do you own and control your assets (like real estate)? Or do you invest in things, like mutual funds? You have NO control over mutual funds. And no, picking the fund doesn't count. If it goes down, you can't make a call and make it go back up. Real investors don't invest in mutual funds. They invest in real assets that they control.
- You believe that high risks give you high returns - If you believe this, you are a gambler. When did a 70% chance of loss become a 70% chance of winning. Isn't the highest risk financial investment a lottery ticket? Why not "invest" in those? Because it's foolish, right? Exactly! Tying in with #2 above, real investors want control and to take as little risk as possible.
- You believe diversifying is buying different mutual funds - Diversifying is just admitting you have no clue what you're doing. One of the richest men in the world, Carlos Slim said in an interview with Larry King that whenever he didn't follow his father's advice and invested outside of his business, he lost money. Wealthy people have different assets, but they stay focused in just a few areas. They focus on areas they know a lot about. Business owners focus on their businesses. Real estate investors focus on their real estate. And so on. One person I know even believed that he should buy multiple investments from multiple people. He said, "I diversify my investments and the people I invest with." He had more than 25 different investments that he couldn't keep track of. Oh and they were nearly all in mutual funds and in speculative ventures where he had no control or experience. Crazy! Furthermore, a mutual fund is not diversifying when you are only in paper assets. 2008 proved this when the majority of equity AND bond mutual funds were losing money. The stock market is not a respecter of persons.
- You listen to the news - An amateur believes what they hear in the news. Oh yes, we've all met them. They go spewing off about the economy and how much they know...and they still don't make a lot of money off of that "knowledge." Don't listen to that brother-in-law who happened to take a few economics classes in college. Don't listen to financial news shows that are paid nicely by investment companies that want your money. Listen to those that really get it and do it!
- You listen to broke financial salespeople - Very similar to #5. If you listen to the typical financial advisor who really only sells you products, but doesn't understand investing themselves, then you're gambling. I have had a few clients that had advisors tell them that they thought the market will keep going up and should invest in ALL equity-based (stock) funds after 6 bullish (up) years in a row! Read my Y2K15 post, and you'll know why that's pretty foolish.
It comes down to this. Don't do what everyone else does. Do only what the successful do.
They have firm rules.
They invest in what they can control.
They take low risks. They only take risks they understand.
They focus on investing in what they know really well (and are passionate about, I might add).
They listen to their experience and intuition and/or those that are actually doing it. No posers allowed!
Learn to be an investor that makes money. Not a gambler who sees "easy come, easy go."