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How to Get Better at Investing
I watched the play HOTEL by W!ld Rice last weekend. It was easily one of the best plays I’d seen in a while: Awesome storyline, witty script, superb acting, and loads of deep concepts about Singapore’s identity/history to think about.
Not just that, but the actors spoke in nine languages. Nine! They flawlessly switched between English, Mandarin, Malay, Japanese, Urdu, Cantonese, Hokkien, Tamil and Tagalog – many of which they had to learn from scratch.
Now, as someone who’s shamefully terrible at his own Mother Tongue, it got me wondering: How did these actors get so good at learning a completely new language? (The dialogue-heavy play spanned 5 hours, so they had a looooot of lines to memorise).
In fact, it spans beyond just languages alone. Think about areas like getting fit, waking up early, presentation skills, sales, video editing, programming… and investing. So many things in life that we want to get better at.
But how do we do it?
Skills vs. Habits
How many times have you heard someone say:
- I’ll do my best to start waking up early from tomorrow!
- I really have to start eating less and working out more
- I plan play tennis every Saturday to improve my game!
I call this the “Try My Best” Approach. We millennials grew up thinking that this was the way to improve our abilities. Just try your best! Keep doing it! Don’t give up! Let’s hold hands and sing "We're allll in this together!"
Unfortunately, it also doesn’t work. How many of our friends have "tried" to eat less and work out more? How many of us know of friends who've been playing the same sport for YEARS, but never seem to get any better?
Instead, the first step to getting better at something is to figure out whether it’s a skill or a habit.
I came across this concept in a blogpost by ultralearning expert Scott Young. How can you tell whether something is more of a habit, or more of a skill? Here’s Scott:
A good rule of thumb is that if your main problem is with doing something you already know how to do, but doing it consistently, that's probably a habit. If your main problem is not knowing how to do something well enough, that’s probably a skill.
Skills: Areas where you need to LEVEL UP your abilities to get better. E.g: Learning another language, public speaking, painting, sports, sales, writing blogposts that people actually want to read, making artisanal (I hate that word) coffee.
Habits: Areas which you already know, but need to do them consistently. E.g: Making your bed, exercising, waking up early, saving money, meditating, flossing, decluttering (my wife thinks I’m heartless because I throw away EVERYTHING, including photos and childhood toys).
Here’s where I think the key distinction lies: With skills, simply doing them over and over again doesn’t help. Think about how people can play golf for years but never seem to get beyond a certain level. Or how I can order food in Mandarin every day, but can’t hold a decent conversation. To get better at a skill, there’s a certain strategy known as deliberate practice which we’ll talk more about in another blogpost.
With habits, doing them over and over again is enough to help you get better. If you consistently save, you’ll grow your money. If you consistently eat healthy foods, you’ll lose weight.
So where does investing fall into the picture?
Is Investing A Skill?
A lot of people believe "investing" means carefully researching stocks, or studying complicated chart patterns. They’ll declare, "I need to get BETTER at this stuff! I need to IMPROVE my stock-picking / chart-reading skills!"
In other words, they see investing as a skill.
Unfortunately, despite what your scammy forex coach tells you, research shows that most investors will never be great at stock-picking or chart-reading. Why? For the simple reason that it’s extremely hard to develop skills in these areas:
First, investing doesn’t give you good feedback. Investing is notorious for giving you ambiguous feedback. When you buy a stock and it goes down, does it mean that you made a bad decision? What if you make money consistently for 7 years, then unexpectedly lose it all in a week? When it comes to investing, there are often way too many variables for you to get good feedback about your skills.
Next, it costs too much to get better. We need a low-risk, low-cost environment for us to practice our skills. There’s a reason why there’re so few astronauts or professional lion tamers out there: Because the COST of getting better is prohibitively high. In the same way, levelling up your investing skill isn’t cheap. Making a loss of $500 + commissions every time you trade is NOT a cost-effective way to learn investing.
Finally, it's way too competitive. I’d argue that investing is THE most competitive arena in the world, even more so than sports or chess. Firstly, there are millions of competitors. Next, you have the professionals like banks, hedge funds, sovereign wealth funds and HFT firms who have more technology, more money, and hire Nobel Prize winners and chess grandmasters to give them an edge. With competition like this, it’s now virtually impossible for the average investor to beat them.
All this sounds very depressing. It kinda makes you wanna give up altogether, curl up in bed, and binge watch Empire. But wait! There’s hope.
Investing As A Habit
A skills-based approach might work if you’re a hedge fund manager or running a billion-dollar sovereign wealth fund. But what about the rest of us?
We’re more likely to get better at investing if we see it not as a skill, but as a habit.
Why? Remember what we said at the start: The key to getting better at habits is consistency. Just like working out or eating healthy, it means that ANYONE – not just douchey hedge fund managers – can get better at investing.
So how do we do this? I’m gonna take a leaf from the same Scott Young article and show you how to do it in three steps:
Step 1: Pick The Right Habit.
Take a look at this list of habits: Exercising, waking up early, making your bed, reading, meditating, flossing, eating healthy, saving.
What's the one thing that they have in common?
Answer: They’re all SIMPLE. You already know how to make your bed, floss, and go for a run. It’s not rocket science. There’s nothing stopping you from going out and doing them right now.
In the same way, if you want to turn investing into a habit, pick something simple. Many people complain that investing is complicated and that they don’t know how to do it. But the truth is, learning to invest isn’t that hard… if you pick the right strategy.
The key is to find the SIMPLEST type of investment there is. Hint: I wrote an ebook specifically about this, which you can download here for free.
Step 2: Condition The Habit
When you first start a new habit, it’s doesn’t feel natural. Remember when you first started getting serious about exercising? It was tough as hell to wake up early in the morning, because you didn’t have the habit ingrained in you.
People who're serious about exercising will start with setting mini-goals, like "I'll do 10 push-ups a day" or "I'll go for a 30-min walk". Then, they’ll schedule time on their calendars to do it. Finally, they make the conditions as easy as possible, like laying out their clothes the night before. All this makes it easier for them to condition themselves to the habit of exercising.
How does it apply to investing? Well, instead of making some vague commitment like "Yeahhhh, I really need to invest every month", it’s far more effective to:
Set aside a specific amount, like $100 – $500 a month, to invest
Automate it so that you don’t let your emotions get the best of you
(I show you to do this in the ebook too!)
Step 3: Maintain The Habit
Once you set up the conditions, it’s a matter of making sure that you stick to it for the long run. For example, a long illness or a vacation or a busy day at work could stop you from exercising, so it’s better to anticipate these barriers. (e.g. You could say something like: “If I have to work overtime on Workout Day, I’ll schedule a make-up session within the same week“)
When it comes to investing, that means making a commitment that you'll stick to it no matter what happens, and putting in place strategies to help you do it.
For example, you could set up an emergency fund to draw on when you need to, instead of dipping into your investments. Or you could follow the Ignorance Strategy, which I blogged about a couple of weeks ago.
THIS is what it means to get better at investing!
Instead of spending years trying to understand confusing books and charts, you’re slowly but surely growing your money in the background – all because you made it a habit instead of a skill.
Don’t get me wrong: I think skills are critically important if you want to be successful. But your life will be much, much richer if you grow your skills in other areas like your career, your side business, and your social life. (And for me – learning to speak Mandarin properly)
Don’t waste your energy by trying to turn investing into a skill. Instead, make it a habit, and your money will take care of itself.