As the saying goes, investing is an old man’s game. Because with age, comes (hopefully) wisdom and experience. Lots of experience in playing the financial markets generally translates into an investment advantage. Here’s why.
You’ve probably heard of “history repeats itself.” Truth is, it doesn’t. History, however, almost repeats itself. Young and inexperienced investors easily get caught in the “this time is different” herd mentality. However, old investors have experienced many bubbles, followed by panics. Hence, experienced investors are less prone towards getting caught in a bubble (because they realize that there is no “this time is different”), and thus are less prone towards following the herd over the cliff.
Another thing I would like to point out about “history almost repeats itself” is technical analysis. Technical analysis is the study of past market charts (prices) to predict the future. In short, technical analysis and its indicators work most of the time. Using technical analysis proficiently only comes with experience in constantly attempting to apply it, and analyzing historical charts. “Look to the past, and you will get a glimpse of the future.”
The two dominant investment strategies currently are technical analysis and fundamental analysis. There is a third, far less known, but far more useful (at least I think so) investment strategies known as Psychological Analysis. As you probably know, psychology is the study of how humans will respond to certain events. What I like about studying the psychology of other players in the stock markets is that investor (and human) psychology is the one thing that never changes. Investors always feel fear in a panic, and always feel exuberance in a bubble. The goal of an investor who depends on psychological analysis is to predict how other investors will feel and react to certain market events, even before the other investors themselves know. Since human psychology never changes, an experienced investor who has witnessed the psychological changes in other investors during booms and busts has an advantage in predicting future market movements.
Like any activity (other than gambling) learning how to invest properly and applying it takes time. The field of investing is vast and wide, hence there is unlimited knowledge that will aid you in your financial quest. Those with more experience have obviously learned more about this game than those who have less experience. So if you want to learn more, it’s best that you check out as many books on investing as you can from the library.
Those who have been investing in the markets have what I call a “sixth sense”, or gut feeling. It’s a feeling deep within one’s body that urges one to sell or buy an investment. However, there is a difference between investing in whatever you feel like investing in and a gut feeling. Only those who constantly analyze the markets get the gut feeling. Randomly picking stocks is totally illogical and dangerous for your financial health, whereas the gut feeling rarely urges you to do certain things, and when it does urge you, do it. The gut feeling is right 99% of the time. Many investors heavily rely on their experience in guessing the tops and bottoms of the bull/bear market.
Summary
Just because those who have formidable amounts of investment experience have a great advantages doesn’t mean they’ll be a successful investor. I know tons of investors who are in their 50’s and 60’s that never learn from their experience. It’s not necessarily how much investment experience you have that counts, but how much you learn from your experiences that counts.
So, what kind of investing lessons have you learned? What mistakes have you made in the past? Please share.
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Investors are Playing a Game Where Those With More Experience Have the Upper Hand — 22 Comments
Great tips. I had never thought/heard about analyzing history to look towards the future. It makes sense. As you said, it is always important to know what you are investing in.
Thanks! I believe that history never exactly repeats itself. The fundamental factors are never the same. But for some odd reason, the charts are always the same.
To answer your questions, I’m actually doing a series right now. But with regards to your article, good job. The psychological component is one of the most difficult to gauge. I’ve tried to make a point of creating rules to follow, rather than emotions. Perhaps the most important part is the ability to evaluate my previous decisions. If I trade on emotion, it will be difficult to evaluate objectively… where as the rules are clear and defined.
I like the psychological analysis suggestion – people seem fairly predictable when it comes to panic and exuberance. Seems like you could cash in on this somehow – although I don’t know enough about investing yet to figure out what that is.
Empirically, technical analysis is a losing proposition. Over time, (a long time) value investing is the winner. But in the short term it is anyone’s guess.
Not from my experience. What I believe is that “who cares what the current fundamentals are.” It’s the big fundamentals that count. The price tells you everything, because no man or women can know every single fundamental. The price (the market) is the smartest, because it has included the knowledge of the entire market.
Our biggest learning curve came from dropping Netflixs a few years after purchasing, and about a year before it took off. If we just would have been more patient…
Double tops, head and shoulders, pennants…technical analysis is not half bad for forecasting trends, as the data is the data. But backward-looking data sucks at predicting major game-changing events.
As for making individual investing decisions, well, that’s where the “old man” part comes in, I suppose.
what do you think about the Elliot Wave Theory? It seems to take patterns from the past into account to predict the future. Some people think it predicts the psychological responses of people.
Interesting take on why older investors in theory should be better investors. With age comes wisdom, but if an investor, regardless of age, can learn from his mistakes, not get bogged down by woulda, shoulda, couldas, and control his/her emotions, that person should be a successful investor. Not there yet, hopefully one day.
@Buck. I think that is good advice in general. We should all learn from our mistakes, financial and otherwise and use that knowledge to approach the future differently. It is in our best interests to do so.
Great tips. I had never thought/heard about analyzing history to look towards the future. It makes sense. As you said, it is always important to know what you are investing in.
Thanks! I believe that history never exactly repeats itself. The fundamental factors are never the same. But for some odd reason, the charts are always the same.
I agree with you–I hadn’t thought about it either! Great tips. You have to know what you are investing in and learn from your mistakes. Great article.
To answer your questions, I’m actually doing a series right now. But with regards to your article, good job. The psychological component is one of the most difficult to gauge. I’ve tried to make a point of creating rules to follow, rather than emotions. Perhaps the most important part is the ability to evaluate my previous decisions. If I trade on emotion, it will be difficult to evaluate objectively… where as the rules are clear and defined.
Indeed it is. There is no numerical metric that one can totally rely on when it omes to psychology.
I like the psychological analysis suggestion – people seem fairly predictable when it comes to panic and exuberance. Seems like you could cash in on this somehow – although I don’t know enough about investing yet to figure out what that is.
Psychological analysis takes practice. It’s not really something that you can learn from the books.
I didn’t realize there was a saying about investing being an old man’s game!
Always look to the past and learn from it. Human behavior is what everything we know is based on – investing included.
Empirically, technical analysis is a losing proposition. Over time, (a long time) value investing is the winner. But in the short term it is anyone’s guess.
Not from my experience. What I believe is that “who cares what the current fundamentals are.” It’s the big fundamentals that count. The price tells you everything, because no man or women can know every single fundamental. The price (the market) is the smartest, because it has included the knowledge of the entire market.
Our biggest learning curve came from dropping Netflixs a few years after purchasing, and about a year before it took off. If we just would have been more patient…
Yes. But let’s not bemoan the past, and work towards the future.
Double tops, head and shoulders, pennants…technical analysis is not half bad for forecasting trends, as the data is the data. But backward-looking data sucks at predicting major game-changing events.
As for making individual investing decisions, well, that’s where the “old man” part comes in, I suppose.
Lol. The key thing about comparing historical data is that you compare right now to the right time in history.
Investing is such a psychological game! I always repeat the mantra buy when others are fearful!
Easy said, hard to do.
what do you think about the Elliot Wave Theory? It seems to take patterns from the past into account to predict the future. Some people think it predicts the psychological responses of people.
It’s an interesting theory, and I do occasionally refer to it. Note: OCCASIONALLY.
Yes, from what I’ve read about it, it’s a little bit out there.
Interesting take on why older investors in theory should be better investors. With age comes wisdom, but if an investor, regardless of age, can learn from his mistakes, not get bogged down by woulda, shoulda, couldas, and control his/her emotions, that person should be a successful investor. Not there yet, hopefully one day.
@Buck. I think that is good advice in general. We should all learn from our mistakes, financial and otherwise and use that knowledge to approach the future differently. It is in our best interests to do so.
Completely agree. On average, wisdom should come with age. But of course there are the exceptions.