Master your fundamental research. Join 78,618 investors who trust our platform and content.
Save 54+ hours of fundamental research with free access to Stock Card.
We only ask your name and email address.
The first time I started working out as a CrossFitter, I was amazed at how comprehensive the movements are. What keeps me going back to CrossFit workout is the extent to which the programs are designed to create overall fitness for everyday people. From nutrition to agility, strength, flexibility, and functional movement, the CrossFit founder, Greg Glassman, has included all such elements into his manuscript to achieve overall fitness. The definition of fitness by him in 100 words is the most straightforward but comprehensive plan I have ever come across in my pursuit of fitness. Such has inspired us at Stock Card HQ to come up with a definition of our own. Of course, this is not a definition of physical fitness. Instead, it is the most straightforward but comprehensive definition we have come up with for financial and investment fitness. Similar to the definition of being fit, being an intelligent investor is a combination of several elements from a healthy attitude toward money to a logical way of thinking about investment.
In this blog post, we are exploring what it means to be an Intelligent Investor using the seven commands of financial wellness:
Number one: Spend less than what you earn and invest the difference
It's straightforward. You can't become an investor unless you save some money to invest. It doesn't have to be a significant amount of money. Can you save five bucks? Start from there. Create a habit of finding a way to spend just a bit less per month and allocate money to your investments. It's the same as allocating budget for shopping.
Number two: Don't carry high-interest debt.
This is very obvious. If you have debt, especially if you pay high interest, such as credit card debt, most likely, the interest rate is higher than the return you can earn through your investment. Before you start investing, take care of that debt. Paying off the high-interest debt is an investment by itself. You are patching the holes in your pocket that is draining your wealth.
Tip: You can use the process you created to save regularly to pay off your high-interest debt. Your welcome for that tip! We are here to serve! ;)
Number three: Don't invest the money you need for your day-to-day life
Investing is similar to becoming fit and building muscles. It takes time. You can't go to the gym this week and have six-packs the next week. Same for investing. When you invest your money, you can't expect to become a millionaire the next week and have the money to pay your rent and go on a vacation too. Don't invest the money you need for your rent, car payment, or buying food the next week or the next month. Make sure you have enough money to live your normal life before investing.
Number four: Understand the difference between trading and investing
In your circle of friends, you probably know a friend who lost 10,000 dollars in the stock market when he was 22, and he had to move back in with his parents and other such stories. While those stories are true, those are mostly related to people who wanted to trade and not invest. To explain it in the simplest terms, when you trade, you are all about charts and stock prices. You try to use whatever you can to predict future prices, maybe in the next 2 minutes, 2 hours or two days. That's just extremely fast-pace, too technical, and one might even say delusional. Some studies show, at best, the success rate of trading is less than 5%.
There is another way of participating in the market. It's called investing. You don't care about the price movements in the short-term. Instead, you focus on the strength of the companies you are investing in. Similar to how venture capitalists invest. They are not investing because the valuation of the company is going to go up in the next 2 hours. They pick a good team, a good product, a company with indicators of success, and let the company grow for years before they consider selling. You can participate in the stock market just like you invest in a startup.
Number five: Invest most of your money in well-managed companies in growing markets and hold it for as long as the company stays well-managed and is growing
Let's take an example. You have a friend. He is a chef. He is very talented, and he finds a great location in the touristy part of the town to open a new restaurant. You are investing in this restaurant because of his skills and the location he found. You see a lot of potential in this opportunity based on facts and information. You give some money to him, he gets money from his parents or his savings, and there you go, there is a restaurant. Let's say after the restaurant becomes a hit, one weekend, not too many people show up. Are you going to sell? No! You didn't invest in the restaurant because of its sales in one weekend. You invested in this opportunity because the facts and information you have about the restaurant make you believe in the long-term potential of the restaurant. Therefore, you'll stay with it for at least a few years. The same goes for long-term investing in other things. Invest based on the long-term potential of the companies. Write down the reasons you have invested in them and hold your investment for as long as such reasons are valid.
Number six: Understand that the news and financial media is mostly to entertain you, not to inform you
Of course, you need to be up to speed about the companies you invest in, about their products and market opportunities, and how the company is operating. However, keeping up with the daily news is not the right tool to do so. The daily news is not designed to inform but rather entertain. The headlines are designed to make us show an emotional reaction and get hooked to the news, just like any other show. If you understand the incentives behind the financial media, you really should step back, shut down those news notifications, and not make investment decisions based on those.
Number seven: Look for investment ideas in how you live, where you work and what you consume
Investing for the long-term is about investing in great companies that we consume their products, and they are an essential part of our lives. Many products we eat, drink, buy, and use are so crucial to the lives of millions of people that, over the course of years, they become great investments. You don't need to look for the needle in the haystack or go after some hidden gems to be a successful investor.
For most people, there is a long list of clear and apparent investment opportunities before they even need to spend a minute to find hidden gems.
Alright, there you have it. Those are the seven things that define being an intelligent investor.
Before I let you go, one last thing. Have fun investing! You get to put your money to work even while you are binging on Netflix. Investing for the long-term gives you a chance to gain financial independence and not to live a 9 to 5 job all your life. So, become an intelligent investor, have fun while doing it and be proud of being on the journey to your financial independence. Maybe retire early!
That's it! I will see you next post!