Ever since I started studying finance the concept of stocks being the highest return and risk asset has stuck into my mind. Therefore, for someone investing for the long term, stock is without doubt the best asset. Since most of us think we invest in the long term, we would always consider allocating some of our money in stocks or “growth” portfolios in pension.
However, the fact is, we don’t really invest for the long term. Each day we are exposed to different news that trigger us to sell and buy stocks. We are never confident about holding stocks for the long term because most of us never did enough research on the stocks we own. Even if we did, most of us don’t have the mindsets to grind through the hard times. Therefore, most people simply begin by trading a little bit, either got lucky and made some money but then eventually lose most of it back, became demotivated and left. Meanwhile, giving up a lot of opportunities should they have done it the right way.
In the last 10 years, in the city that I live, most of the money were made in properties. I primitively calculated that from the bottom of 2009 to now, the tracker fund for stocks returned about 120% while the property index returned 200%. However, this 200% by properties were achieved through leverage. Assuming a 70% mortgage, this meant the actual return is 600%. Meanwhile, not many of us would have the guts to leverage up our stock portfolio 2x. It’s just not what people do. Also, for most people, their properties are their biggest asset. This meant for those who do not own properties especially the younger people, it was pretty much impossible to catchup.
I honestly don’t know what to say to the finance professor (that I paid tuition fees for) that taught me stocks is the best risk/reward asset other than cursing viciously because this one view has simply changed the trajectory of not only my life but my family. And this idea ingrained deeply in me because I learned this from a professor, which is supposed to be respectable and know his stuff. Now I had to unwind this cognitive bias, which I studied so hard for to learn.
My opinion is that people made money not really because they could foresee the huge boom in the property market but I think it was also due to ease of sell. It was so much harder to buy/sell properties (because most of us live in the properties we owned) compared to stocks which made people held on even though at times, they must have had negative views on the market influenced by media or family/friends that are influenced by media. If it was as easy as stock trading, they would probably have sold their property already.
The decision was also made easier because properties pretty much went up in 45 degrees while stocks had a few cycles in between.
All these make me think really hard what to invest in the next 10 years.
A lot of great investors mentioned they don’t know how to time the market so it is a rare skill. The trick therefore for most people is to manage their emotions, which is the main reason for a buy/sell decision most of the time. This means being very mindful of the news and information you are exposed to.
I genuinely believe there is an over focus on views and analysis and not enough on mindset. In the end, a view is a 45/55 game, nothing more, nothing less. One must make many notes and be discipline to become a genuine investor.
Disclaimer: This article is my personal opinion and not meant to be investment advice.