Learning to invest takes time and experience. When I started investing in stocks, I felt like a kid in a candy shop. Actually, for that analogy to work, it would have to be a candy shop where some of the candy is spicy, some is sour, some explodes and only about half is any good. I was faced with thousands of stocks I could buy, but how to decide? So I chose a strategy at random (momentum), mis-applied it, and had mixed success. As I read about and practised investing, I realised that there are many strategies that can all be successful. How could I choose one, or could I combine various strategies?

There was still one element missing. Underlying my choice of strategy lay my purpose for investing. Early on, I had very little idea of my purpose. I am a financial advisor, and that’s what we do: we invest. Obviously, I wanted gains, but results were hit-and-miss as I varied my approach and invested only haphazardly. When I determined that I was investing for early retirement, in order to leave my job and become a teacher in Hong Kong, my purpose became clear and the most effective strategy for my situation became obvious. Having and keeping in mind a purpose made me a much more successful investor.

Saving and investing has never felt like a sacrifice to me. I’ve never had to give up buying something I wanted so that I could invest. The purpose behind my investments, my goal to retire at age 35, informs each decision. I could go skiing, or I could retire earlier; I could buy a new car, or I could buy a used car and move to Hong Kong sooner; I could buy a flat-screen TV, or I could start teacher training sooner. As Roy Disney, Walt’s brother, said: “When your values are clear, decisions become simple.”

As I hinted earlier, decisions about potential investments are almost limitless. Not only are there thousands of common stocks, there are also preferred shares, bonds, real estate and others. Given that I want to replace my earned income with passive income, any investment that doesn’t produce cash flow is unsuitable for my situation. That filters out a majority of the options and simplifies my decisions greatly. I don’t need to know everything about every type of investment, and I don’t need to be informed about the prospects of every sector of the economy. I can focus my time and attention on a couple dozen companies at a time, looking to invest in the most promising, while ignoring everything else.

Autumn 2008 was a shock to me. I had never experienced a market crash before, and I was shaken by it. I was fortunate to have someone older and wiser, my father, to put things in perspective and show me the benefit of remaining optimistic. I realised that, despite the drop in market value of my shares, the dividends continued to be paid. Because I was so focused on my goal of accumulating dividend income, I didn’t panic. I found opportunities (high yields due to irrationally low share prices) to take advantage of difficult time. In hindsight, I still can’t tell if I was smart or lucky, but I was able to act because of the grounding provided by my purpose.

Having a clear goal keeps me motivated, focused and disciplined. The purpose behind my investment strategy increases my likelihood of success, just as straying from it has usually been a mistake. When you invest, what purpose are you working toward?

Having a Clear Purpose Improves Results

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