Investing, like everything in life, is about timing

  • By Luke Andresen

  • August 7, 2018
  • 8:02 pm BST

Whether it’s the fruit of an investment such as compound interest or learning to master a new investment strategy, we often give up prematurely because we don’t have time – or at least that is what we tell ourselves. In fact, what we actually convince ourselves is that something simply doesn’t work, and it’s all because of our hurried approach to seeing positive outcomes.

Many traders have fallen into the trap of deciding to learn some new strategy that promises immediate results, only to realize that buying into this kind of myth is like buying one of the many transform-your-life-in-24-hours CDs. After listening to it, you realize that a lot more work will be necessary to improve your memory, mathematics skills or knowledge of a foreign language than just listening to a recording for the equivalent of one day.

Time and timing are two sides of the same coin

Statistically, it has been shown that the chances of success with your first forex transaction are about 65%. The trader with the correct frame of mind who is one of the lucky 65% will also factor in the time to make his earnings work for him, knowing that the unlucky 35% chance of making a loss will hit at some point. Conversely, a trader may make a loss the first time around and withdraw all his money in haste. Such a trader has deprived himself of the time required to be on the 65% winning side.

Poor discipline is worse than poor timing 

Impatience and a lack of discipline, focus or willpower is a terrible combination. In fact, one seems to lead to the other. Not wanting to wait to see results for themselves, investors often hand their money over to other people or managers who don’t achieve the best results possible. It is often the case that as an investor handling your own money, you do much better with it in the medium to long term. You are more personally incentivized to do so because any losses are very real to you.

Managers also often invest where the corporate interest lies, rather than objectively scouring the stock market for all possibilities. Investment guru Warren Buffett has cautioned that “risk comes from not knowing what you are doing”, and this includes blindly handing your money over to someone else and trusting them to do the best with it.

Success is linked to time

You must take the time to learn to invest, and more time to leave your money to bear proper fruits. Those two realities are inescapable. You need to give your funds the right amount of time in the right cycle to allow the money to grow.

What about strategies that seemingly offer a 50% return within three months, but in which the risk of loss is almost 50%? It depends on what percentage of your funds you are putting in. Going in with 100% of your capital is never a good idea. If you’re trying to triple or double all your existing capital in a few months, you will almost invariably burn through all of it. The rule of thumb in determining whether you should go for something is whether you can live with losing how much you potentially have to gain, and in the same period of time.

When is the “right time”?

Given all this talk about money needing time to pay dividends, how much time is enough and when is the right time? Warren Buffet’s take, for example, is: “Our favorite holding period is forever”.

One of the richest men in the world may have the luxury of waiting forever, but for practical purposes in the field of social trading, one year is a good time frame. This does not mean sitting out a year to see how an investment route works. It means you must have access to data so you know what it has done for at least one year. Once you’re satisfied it’s the right route to take and you have reasonable expectations, you should stay the course for at least one year.

Nevertheless, common sense must prevail at all times. Let’s say that after three weeks, everything that could go wrong starts to go wrong. In that case, you need to take corrective measures. If normal conditions persist, on the other hand, you need to give it 12 months.

In these 12 months, you must take every opportunity to read and upskill yourself as much as possible, especially if you are new to the vocation. Whether it is technical indicators, trading strategies or news, the initial time you’ve put in to study will never yield a loss. In that sense, it is worth the investment many times over.