Why focus is the only thing that matters when it comes to managing our money.
There are a lot of things to look at when it comes to financial markets. Almost everything is listed on publicly traded exchanges these days. Between equites, bonds, commodities, and all sorts of financial derivatives, there are more than $1 quadrillion worth of assets trading in the global capital markets. That’s 15 zeros in case you were wondering. But it’s not just the immense value of the market that makes this big boys toys, it is also the number of different investment instruments. There are funds, there are shares, there are loans, high yield bonds, forwards, futures, options, notes, warrants, synthetics, UCITS, ETFs. Actually, any combination of three letters you can think of, and you will probably find some financial instrument that is there for investment.
It is why there are professionals that study this stuff for years, with much experience and there are all sorts of very smart people that do all kinds of mesmerising things. But the problem is, there are seemingly just as many so-called experts as there are financial instruments. The global financial services sector is worth almost a quarter of all listed equities. There are bankers, traders, advisors, consultants, insurers, brokers, dealers, wealth managers, investment specialists, custodians, trustees, IFAs, CFAs and there we go again with yet more acronyms.
How are we supposed to look through all of this? Who can really claim to know everything and understand what everyone does? No one can, and guess what no one “knows” anything either. Insider trading is illegal for a reason. The only thing we can do in a world that is random is keep our money very close at hand. The old adage, trust is good, control is better is what it is all about when it comes to managing our investments. We have to check our statements, we have to trace our transactions, and we have to make sure all is where it should be, otherwise it is our fault. People make mistakes, messages get sent in error and before you know it, something went wrong and unless we catch it, in time it will get lost in a mountain of other data.
That’s the easy part, much harder, is knowing where to put our money. The thing to bear in mind is that ninety percent of our investment return is driven not by what we buy, but rather by how much. This makes things fairly simple, because that is what we control and if we don’t like it, we don’t have to play. We don’t have to buy exotic derivative structures. We don’t have to overpay for our investment services. Thanks to technology, it is relatively cheap to invest these days, subject to the guidelines previously mentioned. How much are we going to put at risk in every single investment we make is the only thing that matters. So think about it, before you make your next investment, and ask yourself: how much am I willing to lose? The rest, kind of takes care of itself.