Are You Crazy For Investing In The Share Market?

I recently had my ceiling repainted after a leaky pipe incident. When the painter finished the four-hour job, he asked me what I did for a living.

I told him that among various jobs, I spent a lot of time reading annual reports to invest in businesses on the share market.

His immediate response was, “Oh, are you any good at it? Do you have to stare at a screen all day to make sure you don’t lose money?” Like many, he had preconceived notions about the share market.

I explained that I don’t do any of that. Instead, I buy companies that are fairly valued and likely to grow. He said that seemed too complicated for him.

However, his interest piqued when I showed him the Vanguard Index Chart. I hope he took some action after he left.

This interaction made me ponder the biased nature of investing in the share market. Many people view it as a form of gambling, which deters them from starting.

In Morgan Housel’s book The Psychology of Money, his first chapter is titled “No One’s Crazy.” He emphasizes that people’s backgrounds and childhood experiences shape their perceptions of money, risk, and financial management.

With the global economy facing higher inflation and volatile stock and asset prices, it raises the question: how do people invest?

Mainstream Media And The Share Market

I often pay little attention to mainstream media because it tends to steer sentiment in a specific direction. If you don’t think for yourself and do your own research, you might get swept away by others’ opinions.

For instance, consider former RBA governor Philip Lowe’s statement that “interest rates are unlikely to increase until 2024 if economic conditions remain the same.”

News outlets took this as a definitive claim that rates would not rise until 2024. However, when inflation ticked up and interest rates followed, mortgage payers felt the squeeze and all fingers pointed to Lowe.

Words can be twisted to fit a narrative, and blindly following the masses can lead you astray. Especially if the information isn’t entirely correct. We must remember that news corporations are for-profit entities, driven by the need to boost revenues and profits.

While they do report on important topics, they choose stories that will elicit a strong response, which may not always be in the nation’s best interest.

One of the worst investment strategies is to rely solely on what mainstream media reports. Always do your own due diligence, even if it requires a bit more effort.

Macroeconomics And The Share Market

Warren Buffett often says he’s “never made a decision based on an economic prediction.” Why would such a successful investor ignore macroeconomic factors despite his vast exposure to various industries?

The main reason is that economists aren’t great at forecasting. Humans can’t predict the unpredictable, which is why black swan events occur.

For example, in March 2011, a massive 9.0 magnitude earthquake struck off the coast of Japan, leading to the Fukushima Nuclear disaster.

Engineers designed the Fukushima Daiichi Plant to withstand earthquakes, and it did survive the initial quake. However, they hadn’t fully considered the potential impact of the subsequent tsunami.

While engineers took precautions against earthquakes, they overlooked the tsunami risk. This highlights that unforeseen events happen all the time.

This is a key reason why you shouldn’t base investment decisions on economic predictions. Unlike the hard sciences of physics or chemistry, economics involves numerous variables.

Instead, focus on what an individual business will do over time. In the share market, expect both good and bad times for businesses. Economies will fluctuate, but the critical factor is whether the business can survive through tough periods.

No One Is Crazy

Returning to the idea that no one is crazy in how they handle their money, it’s clear that investment strategies vary widely. Not everyone will invest like I do, or like you do.

Had I not discovered Warren Buffett, Peter Lynch, Howard Marks, or Charlie Munger early on, my investment philosophy might have been entirely different.

The share market is highly volatile, but that’s the price we pay for liquidity. For example, unlike property, which can take months to list and settle, you can sell shares with just a few clicks.

Imagine if you put your house up for auction every day. You’d see its value fluctuate dramatically, just like stocks do. Property feels less volatile because you only see two prices: when you buy and when you sell.

Now, consider the share market, where prices are quoted five days a week. This constant visibility makes stocks seem more volatile. Shares can be traded so easily that countless factors can prompt people to sell, making daily price movements seem erratic.

Ultimately, it’s useless to fret over daily ups and downs in the share market. Remember, no one is crazy—daily market movements are just noise. As investors, we should focus on understanding the businesses we invest in and their long-term prospects.

Key Takeaways

• Mainstream media may twist narratives to prioritize profits over accurate reporting. Always do your own research when investing in the share market.
• Economic predictions are often unreliable as unexpected events occur that is beyond human imagination. Instead, focus on individual business performance and how they are likely to be in the future.
• Investment strategies vary widely, and daily share market fluctuations are just noise. Focus on understanding businesses and their long-term prospects, as everyone’s approach to handling money is different.

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