Reflections on a Decade of Investing
Over the past decade, I’ve navigated two cycles of crypto hype, dabbled in higher-risk stocks, and carefully avoided real estate due to its liquidity issues. As a young investor with a high tolerance for risk, my journey has been shaped by both ambition and inexperience. I’ve read the classics—Lynch, Buffet, Graham, Damodaran—and taken courses to sharpen my understanding of company valuations. Despite this, the reality of investing has taught me lessons beyond the pages of any book.
One piece of advice I frequently hear is, "Markets can stay irrational longer than you can stay solvent." There’s truth to this, but I see it differently. Markets may appear irrational in the short term, but prolonged irrationality suggests that I may not have accessed all the necessary information. This is why I emphasise investing in transparent companies, where I can fully understand their operations, financial health, and future prospects. Access to reliable information allows me to make informed decisions, reducing the so-called "irrationality" of the market.
I am an idealist. At the core of value investing, I believe an investor should make a positive impact on the companies they invest in—no matter how small. In an ideal world, companies seek investments to grow, share profits, and build lasting value. This aligns with the principles of Islamic finance, though that’s a story for another day. In reality, the investment landscape is far more complex, and not everyone shares my optimistic view. Still, my idealism informs every decision I make as an investor.
I believe in value investing because it’s not just about numbers, but about supporting businesses that contribute positively to the economy. Ideally, every investment helps foster growth and long-term sustainability. But the reality of investing means that theory and practice don’t always align, and I’ve come to accept that not everyone will follow this reasoning.
Now, let’s address my risk appetite. Being young with minimal financial needs and a high income potential gives me an advantage. I have the luxury of disposable income that I can afford to invest in high-risk ventures. For me, the key is approaching the optimal risk-return curve, which is no easy task. Many shy away from risk because of the psychological bias highlighted by Daniel Kahneman and Amos Tversky in their Prospect Theory—people feel the pain of loss more deeply than the pleasure of gain. There’s a disproportionate premium placed on certainty in investing, which young investors like me can exploit.
This theory plays out in decision-making: people often choose the guaranteed $1 win instead of the 5% chance to win $100, despite the higher expected value in the latter. This aversion to risk keeps them stuck in their financial comfort zones. The truth is, life offers countless opportunities to make this choice, and over time, those who take the calculated risk stand to benefit far more. A long investment time horizon allows me to ride out market fluctuations and capitalise on higher returns that many are too risk-averse to pursue.
However, risk management is critical. The second part of the saying, "longer than you can stay solvent," serves as a vital reminder not to overextend. If we invest more than we can afford to lose, we’ll likely face a liquidity crisis at the worst possible moment. Solvency is about knowing our financial limits and maintaining enough flexibility to adapt when necessary. Interestingly, I’ve noticed that many investors, myself included, struggle more with taking profits than with limiting losses. One rule I’ve come to appreciate is, "Sell half when your investment doubles." This approach ensures I preserve my capital while still leaving room for future gains. I can think of several investments where I could have recouped my initial outlay but let greed or indecision stop me from taking those profits.
TL;DR: A successful investing strategy requires a blend of transparency, research, understanding our time horizon, and disciplined profit-taking. When done correctly, investing can not only build wealth but also enrich our understanding of markets and, ultimately, ourselves. So, continue to DCA and HODL towards the eventual wealth we may all enjoy in our golden years.
One piece of advice I frequently hear is, "Markets can stay irrational longer than you can stay solvent." There’s truth to this, but I see it differently. Markets may appear irrational in the short term, but prolonged irrationality suggests that I may not have accessed all the necessary information. This is why I emphasise investing in transparent companies, where I can fully understand their operations, financial health, and future prospects. Access to reliable information allows me to make informed decisions, reducing the so-called "irrationality" of the market.
I am an idealist. At the core of value investing, I believe an investor should make a positive impact on the companies they invest in—no matter how small. In an ideal world, companies seek investments to grow, share profits, and build lasting value. This aligns with the principles of Islamic finance, though that’s a story for another day. In reality, the investment landscape is far more complex, and not everyone shares my optimistic view. Still, my idealism informs every decision I make as an investor.
I believe in value investing because it’s not just about numbers, but about supporting businesses that contribute positively to the economy. Ideally, every investment helps foster growth and long-term sustainability. But the reality of investing means that theory and practice don’t always align, and I’ve come to accept that not everyone will follow this reasoning.
Now, let’s address my risk appetite. Being young with minimal financial needs and a high income potential gives me an advantage. I have the luxury of disposable income that I can afford to invest in high-risk ventures. For me, the key is approaching the optimal risk-return curve, which is no easy task. Many shy away from risk because of the psychological bias highlighted by Daniel Kahneman and Amos Tversky in their Prospect Theory—people feel the pain of loss more deeply than the pleasure of gain. There’s a disproportionate premium placed on certainty in investing, which young investors like me can exploit.
This theory plays out in decision-making: people often choose the guaranteed $1 win instead of the 5% chance to win $100, despite the higher expected value in the latter. This aversion to risk keeps them stuck in their financial comfort zones. The truth is, life offers countless opportunities to make this choice, and over time, those who take the calculated risk stand to benefit far more. A long investment time horizon allows me to ride out market fluctuations and capitalise on higher returns that many are too risk-averse to pursue.
However, risk management is critical. The second part of the saying, "longer than you can stay solvent," serves as a vital reminder not to overextend. If we invest more than we can afford to lose, we’ll likely face a liquidity crisis at the worst possible moment. Solvency is about knowing our financial limits and maintaining enough flexibility to adapt when necessary. Interestingly, I’ve noticed that many investors, myself included, struggle more with taking profits than with limiting losses. One rule I’ve come to appreciate is, "Sell half when your investment doubles." This approach ensures I preserve my capital while still leaving room for future gains. I can think of several investments where I could have recouped my initial outlay but let greed or indecision stop me from taking those profits.
TL;DR: A successful investing strategy requires a blend of transparency, research, understanding our time horizon, and disciplined profit-taking. When done correctly, investing can not only build wealth but also enrich our understanding of markets and, ultimately, ourselves. So, continue to DCA and HODL towards the eventual wealth we may all enjoy in our golden years.
Note: this was written with the aid of ChatGPT and is NFA bro, so DYOR please.
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