I’m neither an accomplished investor nor a stock-market trader and I don’t have a proven system for FOREX trading or spread-betting.
What strikes me as I read about those who have mastered the financial markets is that the same basic principles of trading and investing seem to apply more generally in life.
The traits of a successful investor — discipline, tolerance for risk, good judgment, patience and a willingness to learn from mistakes all seem to correlate with those that make for a successful life.
If we can learn to apply these principles across our lives, not just as investors but as human beings, it seems to me that we stand the best chance of living a life that’s rewarding, accomplished and fulfilling.
Here’s how I interpret some of the better-known laws of investing and how they relate to daily life.
1 — Past performance is not necessarily an indicator of the future
This statement, paraphrasing the universal health warning that features in the small print for many investments applies to all aspects of life. Just because something has been effective in the past or turned out in a certain way, doesn’t necessarily mean it will be so in future.
A business model that has been profitable for decades can be disrupted and overturned through technology and innovation, almost overnight. A skillset that might at one stage have been a passport to riches can, over time die out due to waning demand for it.
Relationships can stagnate if we repeatedly have the same conversations, eat the same meals, go to the same places and become complacent about showing our partner the affection and love that they are due.
An activity that once seemed exciting and stimulating can become boring and mundane if we end up trying to make a living from it. Many a good hobby has been ruined by trying to turn it into a job or a business.
Circumstances change and life changes. Causes and effects that were previously inextricably linked can gradually or suddenly cease to be so.
In life as in investing, we cannot get complacent and assume that just because something has worked previously, that it will continue to do so. Great results aren’t always repeatable through following the same formula.
Conversely, just because life has been difficult for a while, we shouldn’t assume that we are stuck in a rut forever — good things come to an end, but so do bad things.
2 — You can recover from a crash if you’re willing to learn from failures and keep on trying
The financial markets take a dive from time to time but they invariably recover. Those who are driven out of investing by a crash and who refuse to get back in the game deny themselves the chance to recoup their losses.
Whether the crash or failure in your life has manifested as a relationship breakup, a failed business venture, a lost job or a project that has gone awry, there is always hope to learn, to recover and to start again.
To fail many times over doesn’t preclude you from succeeding in the future, any more than a single losing investment means that an investor won’t eventually turn a profit.
The key is to figure out why it failed, to learn from the analysis of that failure and then to move forward, intent on avoiding the same mistake in the future.
3 — Buy Low — Take opportunities when they present themselves.
The best time to make an investment is when prices are at their lowest. The best time to take on a new venture in life is when conditions are optimal.
An acknowledged part of successful trading is effective risk management. If you’re too risk-averse and unwilling to take opportunities when they present themselves, you’ll unlikely to achieve the results you desire. If you’re not selective enough and deploy your resources without due consideration then you’re likely to lose as much, if not more than you gain.
The same is true in life.
We have finite time, money, energy, and attention to use to improve our lives. Deciding where to spend these is often done on the basis of risk, or an interpretation of opportunity cost.
- If I spend my time binge-watching Netflix, I won’t finish reading my book.
- If I spend my money on new clothes, I can’t invest it.
- If I don’t get enough sleep, I won’t have the energy to work out.
The answers are usually self-evident, but we still need to train ourselves to take the right opportunities and to make the right choices.
4 — Sell High — Make the most of the good times but don’t get greedy or complacent
One of the greatest skills of trading the markets is to know when to exit a position in the market. The goal is to sell when the price is at its highest, but the discipline to do this is a rare skill indeed.
Human nature and greed drive us to cling on for longer than we should in the vain belief that things will keep on rising and getting better — we don’t want to miss out on the further upside.
The same discipline is required in life too. We need to ensure we do everything possible to ride the crest of opportunities to maximise our gains from life, without getting complacent in believing that conditions will always be favourable.
When we feel that money is abundant, we need to have the discipline to save some of it for times of scarcity. We may abuse the good nature of our partner in the vain belief that they’ll always put up with us no matter what we do. We believe that we don’t need to invest in ourselves to learn and develop new skills, believing we’ll always be at the top of our game and in demand.
We cannot become complacent or allow ourselves to believe that things will always be this way.
Sooner or later things will decline.
It takes discipline to continually seek to do the right thing and prepare for times of adversity, even when things are going our way.
5 — Accept that the market moves in cycles, and so does life
Over any period of time the financial markets oscillate between rising and falling — nothing remains constant. In the longer term, the overall trend is usually upwards.
The same is generally true in life.
Things move in cycles and life is a constant process of movement between order and chaos. As we progress through life there will be ups and downs and we’ve got to accept the lows to have and appreciate the highs.
6 — Don’t get distracted looking for the next big thing
We’d all like to be able to pick out the rising stars that make enormous returns on the money invested, overnight. Those who have made true and enduring wealth through the financial markets know that such investments are rare, and not easy to pick out.
Established investors trust in the slow and steady performing businesses and the index funds that show consistent and steady growth over time. Interest and returns compound, and wealth steadily builds.
In life too, we waste time looking for the hacks and the shortcuts that will speed up results and give us what we want in double-quick time. Instead of fixating upon speed we’d do better to show up to our endeavours consistently, with ongoing and wholehearted effort and to trust in the passage of time to deliver the successes we crave.
Mastery of a given subject, a stable and thriving business, a happy and loving relationship, a gym fit body — each of these takes time to build and to maintain.
There are no shortcuts. Achievement comes with consistent and persistent effort over time.
7 — You’ve got to be in it to win it
If you shy away from taking a position in the markets out of fear, reticence or apathy, you’re going to be marginalised and miss out. If you aren’t part of the action and are merely looking on from the sidelines, you may feel smug when the markets are in turmoil and everyone is reeling from their losses. You also won’t share in the excitement and satisfaction when things are booming and those who took a chance on the markets are counting their profits.
This is also true for life too. Many hedge their bets and avoid doing anything too risky, usually out of fear of failure.
They’ll spend their lives dreaming of what could be, without ever taking the bold first step towards bringing their dreams to life.
In taking the safe course of action, they don’t give themselves the opportunity to succeed, to achieve or to grow.
Certainly, things will go wrong from time-to-time in any endeavour but if you don’t ever try anything you’ll never know what you could have achieved.
Summing up
Successful traders seem to have much in common with those who succeed in many ventures in life:
- They are comfortable with risk
- They learn from failure and loss rather than being discouraged by them
- They possess the discipline to commit to and follow through on a course of action
- They are able to live with uncertainty
Working to develop or to strengthen these traits may be a good place to start whether you’re looking to master the markets or master your life? It may just pay dividends in your future.