The best definition that I can give on investing is, that it is the mechanism available to everyone by which they can transfer wealth earned today to tomorrow, and not only transfer but multiply and increase, through compounding, so that their future lives can be transformed into something exciting and worry-free, enriched with abundant time to allow them to live as they desire without the constraints and burdens imposed by a lack of finances so often foisted upon the majority.
Investing is a gateway to freedom and prosperity. It is a tool that when properly used brings wealth and its attendant benefits but when improperly used is the saddest and most misunderstood joke played upon unsuspecting mankind.
Saddest because it creates the illusion that wealth is just around the corner, implies the carrot is right there for the taking, promises vast rewards and riches easily attained, yet in the end, after making investors jump through a myriad of hoops and time wasting activities, fails miserably to deliver.
Misunderstood because its inherent simplicity, that is to buy low and sell high, is oft times equated with ease, but simplicity and ease are two very different animals - the latter being like a well bred horse, majestic and proud with perfect proportions where everything fits, logic prevails and it is obvious to everyone that there is just one way, the effortless way, and that this is it. The former is like a wolverine, work-like and efficient but nevertheless underestimated, ferocious and not easily tamed.
The fact that many assume without much thought, that simplicity is identical to ease, then make decisions and go forth with actions based upon that assumption, shows that they know little about investing, and have even less discipline because they will not take the smallest stitch in time to contemplate the way things truly are.
Simple things, by their very nature, appear easy perhaps due to their transparency, inherent logical construction, intuitive nature or the ease at which their concepts can be grasped and understood, but not all simple things are easy as anyone who has tried to lose weight using the simplest of all methods, that being exercise and proper nutrition, can attest.
Some of the simplest things are the most difficult for humans to attain. Investing is one such beast. Again it relates to discipline. Human emotion is forever the enemy of the investor and emotion must always be controlled by sheer force of will, determination and perseverance which when combined gives rise to discipline.
Without discipline the game is over even before it begins. The result is preordained and while the moves have yet to be played, they matter not one bit in the end for the outcome has already been determined - destined to fail in a void of ill-conceived, haphazard actions lacking not just a goal but a good plan as well.
But discipline alone is not enough. Discipline must be built atop the solid foundation of knowledge. Even the most disciplined of travelers following the wrong path will end up tired, hungry and lost.
In that respect there can be no "or" condition. It cannot be knowledge "or" discipline, no independent, separated concepts, rather success must come from both together, from a melding of discrete entities, from a marriage of equals, from the synergies created by the union where the whole is most definitely much greater than the sum of the parts.
Hence the mind must be understood and controlled, its natural tendencies, its entrenched habits, diverted if not permanently changed; and this can only be achieved through constant vigilance and introspection. The mind cannot be allowed to roam free in its natural domain doing whatever it wants at any particular moment in time. Without a tight rein it will lead to places best left unvisited.
As such, considerable effort should be devoted to such a pursuit, but as we well know, this is no trivial task, to rein in the mind, it is no cakewalk or romp in the park; there is no royal road to riches.
If it were not so, every investor would be a millionaire many times over. But as the facts bear out, the vast majority of investors are not rich, they're not wealthy nor are they even almost rich. Rather they have trouble keeping up with even the simplest of investment mechanisms - the index fund.
The reason is the aforementioned lack of discipline and knowledge. Human nature is such that it craves action, it loves a good chase and gets bored very quickly waiting or doing nothing or sitting on its hands. Yet, for investing success, the overwhelming evidence suggests just the opposite; investors, once set up correctly, should wait, do nothing, sit on their hands, albeit making minor course corrections along the way, and refrain from chasing the latest hot stocks. The mind, however, has other plans and the investment industry is all too willing to accommodate it as long as there is money to be made.
Any excuse to sell an idea, whether it is a good idea or not, is floated to the unsuspecting public - so long as it will make truckloads of money; and the more short-term action, the more buzz that can be generated in the media, the more adrenalin fuelling, ticker watching, immediately gratifying the idea the better it will be because the more money it will make for the investment houses selling it.
The fact the average investor will be worse off than if he simply bought a good index fund and held it is not so much blatantly hidden as it is pushed to the side, underemphasized and overwhelmed by the billion dollar marketing schemes that permeate the current investment climate.
Play to human nature and you can't help but make money, appears to be the mantra.
Unfortunately most investors will fall for this siren song because they won't have the knowledge or discipline to resist, they won't have control over their minds, they won't put a plan in place to remove emotion from the investment equation and more than likely they will succumb to the intoxicating game of short-term action and instant gratification touted by the investment community. As a result billions of dollars will flow from individual investors' pockets directly into the investment firms' just as surely as money inevitably finds its way from a gambler's account into the casino's.
If indeed that was the only possibility, then it would no doubt be better to save considerable effort and throw up your hands in surrender, put your money under the mattress and hope, in vain, for a government sponsored retirement plan to bail you out.
But just as not all sheep follow the flock to slaughter, as David the Shepard saw firsthand on more than one occasion, so it is that you don't have to follow the crowd, you can find your own way, another way, a better way and use a well thought out plan that when properly conceived and fully implemented will make you rich beyond your wildest expectations.
The solution is not only simple but easy as well. Remove short-term investment decisions from your emotions' control and you will be far better off down the road. Put all your efforts into setting appropriate goals and finding good plans to help you achieve them - all the while ignoring the rhetoric and noise that will inevitably appear as it always has in the past.
Your future self, 25 or perhaps 35 years hence, will look back and thank you for the wise decision you made today. Your friend's future self, watching his pennies and delivering morning newspapers to make ends meet, will look back longingly and no doubt begrudgingly at his past self and wonder how he could have fallen for the schemes and manipulations that passed for investment advice in 2004; too late will he have realized the wisdom in the words of Warren Buffett who said, "the market, like the Lord, helps those who help themselves. But unlike the Lord, the market does not forgive those who know not what they do."
