Let us not glorify the act of investing and see it as it is

Whenever people speak of the term: “investing” they often make an effort to differentiate their investment operations from that of speculation or even gambling.

Even at a societal level, the act of investing is often viewed in a better light as compared to speculating or gambling but is that truly the case?

In this article, I will be sharing with you my opinion on why the act of investing is no different from that of speculating or gambling and the importance of recognizing what an investment operation is all about instead of perceiving it in a light that you wish to view it from.

Investing v.s. Speculation v.s. Gambling

In my opinion, there is no difference between investing, speculation or gambling.

At the end of the day, investors, speculators or gamblers are all playing the game of probability.

Those who excel at tilting the probability to their favour will turn out to be the ultimate winner of the game. That’s all there is to it.

Whatever tactics – Dollar-cost averaging, Fundamental analysis, Technical analysis, etc – that you think you’re doing is no different from a gambler counting his cards in a game of poker.

Going by that logic, it amazes me that certain narratives are being held as the “go-to” by the general public when they may not be the best approach to adopt? For example, if you’re new to investing, you should dollar-cost average into S&P or STI.

In my opinion, the narratives – especially the ones that are popular online – should not be followed blindly. Your job as an investor is to make use of certain tactics to tilt the probability in your favour.

You should not adopt certain tactics just because a lot of random people are suggesting it online.

Let me give you an analogy.

Imagine playing a game of blackjack and operating with the condition of always drawing an additional third card regardless of the total value of the first two cards. Do you see how ridiculous that sound if put in the context of gambling?

But yet if we change the narrative to be in the context of investing – you should always buy a fixed amount every month regardless of the price and fundamental development of your investment - suddenly it seems like a good decision to make now doesn’t it?

How does that make sense? That just sounds like default bias and confirmation bias with extra steps.

Any strategy or tactics, be it in the game of investing, speculating or gambling, should not be applied blindly. The strategy or tactic should only be applied if it increases the probability to achieve your desired outcome.

The dangers of operating with a false belief

If you invest blindly, you run the risk of investing in instruments or strategies that may not be suitable for what you need.

To make matters worse, financial mistakes are often realized too late.

Yes… with a long enough investment horizon, you may not have incurred a loss on your investments but you’ve lost something more important than just money… you’ve lost precious time.

Imagine having to delay your retirement plans for another 5 years simply because your previous investment operation turns out to be unsuitable to your retirement plan. I’m sure the experience will not be pleasant even though you have not made any monetary loss on your investments.

How then should you invest?

Life is all about answering questions, and the act of investing is no different.

As investors, we’re all trying to answer three questions:

1. What should you invest in

2. How much do you need to invest

3. When should you buy or sell your investments

Of which at the end of the day, all three questions point back to the main question that is: “what is the outcome you are trying to achieve from your investments”.

Depending on the outcome that you are trying to achieve, the type of strategy, tactics and instrument that you should be considering may be drastically different from the common narratives that you see online these days.

In the next article, I will be going into greater detail as to how we can answer the above questions and how you can structure an investment portfolio that tilts the probability to your favour based on your desired outcome.

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Daniel is a Licensed Independent Financial Consultant with MAS and a certified Associate Wealth Planner that provides:

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Disclaimer:

This article is meant to be the opinion of the author and is for information purposes only.

This article should not be seen as financial advice

This advertisement has not been reviewed by the Monetary Authority of Singapore