Smart Challenge: 3 Core Investing Concepts That You Will Forget (But You Shouldn’t)

Investing concepts can be simple to understand but easy to forget. And even harder to put in practice. 

It’s not for the lack of effort. Most aspiring investors would have dutifully read Ben Graham’s classics or studied volumes of Warren Buffett’s letters to shareholders. With the world’s information a click or a tap way, I am sure that you would have done your own fair share of reading.

It’s also not a lack of understanding. The most important investing principles are within everyone’s grasp. 

Interestingly, what I found is that the concepts that matter the most are easy to learn but just as easily brushed over. The disconnect becomes apparent when investors start to put their well-earned knowledge into practice. 

My challenge today is to get you to remember three core investing principles that are all too often left behind when they shouldn’t be. Let’s get started.   

1. Challenge #1: You’re buying a business, not a stock 

When you invest a stock, you’re buying a piece of the business. This concept is as straightforward as it can be. But in practice, investors often behave in contradiction to what is being learnt. 

What I have observed is that when a stock price goes down, anxious investors are quickly caught in a conundrum. The questions that arise are often the same: 

1. Should I buy more of the stock? 

2. What if shares keep falling after I buy? 

3. Should I sell to avoid further losses? 

These are all valid questions and concerns. After all, you have your hard-earning money at stake and want to make the best decision. 

The solution, however, can be found by going back to the core principle. When you buy a stock, you become a part-owner of a business. And that is where your focus should always be — the business. It follows that you should let business developments, not stock prices, inform you of what to do next. 

What you want to avoid is stock price movements triggering you to make the wrong decisions.

2. Challenge #2: You’re investing for the long term 

Investing with a long term horizon brings the best results. 

Most investors worth their salt would agree. From one quarter to the next, the duration is too short for any management team to make a meaningful difference. But if we can extend the quarters into years or decades, the performance that can be delivered can astound us. 

The best part about the deal is that holding stocks for the long term couldn’t be easier. Just do nothing. Or so it seems. 

In practice, what I find is that market events and economic events can distract even the most well-intentioned investor. The results of Brexit referendum in June 2016, for instance, spooked stock markets around the world. But worried investors would have wrong to sell their stocks in response. Don’t let that happen to you. 

Over than three years have passed and Brexit hasn’t happened yet. 

Today, there is a US-China trade war. And then, there are protests in Hong Kong. Both can have an impact on certain companies in the near term. But if you have your long term cap on, you not be looking at what is happening today. Instead, your challenge is to cast your eyes to 10 years from now. 

 3. Challenge #3: Reach for your goals, not other people’s goals

My third challenge is less about investing concepts and more about life goals. But it is no less important. 

That’s because everyone has their own aspirations. Maybe your goal is to generate income for your own retirement needs. Or maybe you could be looking to grow your wealth so that you will have the freedom to choose a better adventure. And maybe it’s both income and growth. 

There is nothing wrong with having your own goals. After all, we all invest for a reason. The challenge is whether we have the discipline to follow through with what we want to achieve. 

I have found that investors have the tendency to push aside their own goals when a new, exciting stock comes along. Take Keppel Corporation Limited (SGX: BN4) for instance. Shares of the conglomerate rose over 14% on Tuesday after Temasek Holdings offered to increase its stake in the company to 51%. 

But what’s exciting today might not fit what you need for your long term goals. 

If you are looking for income, Keppel Corporation is an unlikely candidate, given the volatile nature of the industries that it is in. At the same time, the conglomerate hardly fits as a growth company as its strength is in its diverse business — and not growth. In this context, you should be ignoring Keppel Corporation as an investment opportunity. 

Focusing on your own goals is probably one of the hardest things to do in investing. You have to accept that you will miss out on some of the gains from stocks that don’t meet your needs. But in return, if you stay focused, you stand a better chance in achieving your goals. 

The trade-off, in my eyes, will prove to be far better for your financial well being.   

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