Friday, 16 May 2008

Why Be a DIY Investor and What Does It Take to Succeed?

As the inaugural post on this blog devoted to DIY investing, a good question to answer is why do it in the first place, why not just leave it to an adviser? Another pertinent question is what kind of personality is needed to succeed?

Why DIY?
  • 100% focus on your own interests - most financial advisers are honest and conscientious about catering to your financial needs but DIY offers you the unlimited opportunity to tailor your investments to your own needs and circumstances with as much fine tuning and departure from standard solutions as you wish.
  • cost savings - the DIY approach using a discount broker such as BMO Investorline and others that only execute trades and provide no advice can save you money and boost returns; one of the objectives of this blog is to find and discuss those ways. Even a small savings compounded over many years can have a dramatic effect. The attached chart shows that a seemingly insignificant 1% extra return per year boosting returns from 7 to 8% can create a one third greater end amount after 30 years - $10,000 grows to $100,000 instead of only $76,000.

  • pride of self-reliance - just as business owners often remark on the satisfaction they receive from being in charge, a DIY investor can gain satisfaction from the feeling of being in control of his/her own destiny; it's the "I did it my way" feeling.
  • intellectual challenge and fun - there's no need to play Monopoly when you have the stock market; it's real money and the thrill is all the greater. Not only that, if you play the game properly - another aim of this blog is to show how that is done - you can minimize the chances of losing. Successful DIY investing can be done quite simply, but it also offers to those who get hooked, a wonderful world where you need to read, to learn and to think. For many people with more free time, such as those reaching retirement, it offers an enticing way to keep the mind active, broadening and deepening knowledge in an ever-changing field.
  • community and socializing - there are many DIY investors around; most are happily passive, reading news, websites and blogs such as this one but for those who wish, the web welcomes all comers with comments, questions and opinions. Hang around a while, participate and you get to know others and enjoy the pleasure of a shared interest.

What Kind of Personality is Suited to DIY?

Your personality and behaviour is the crucial issue. From the early days of investment giant Benjamin Graham in his book The Intelligent Investor, through all the academic research that has detailed it since (summarized neatly by Richard Deaves in his book What Kind of Investor Are You?), all agree that the key to success is how you handle yourself. You must avoid the errors of over-confidence, impatience, procrastination and being too emotional. If you are among those who are naturally planners, who look forward and are willing to defer immediate gratification and wait for longer term results, who are self-controlled and self-disciplined, who can accept that not every investment will turn out a winner and who are able to bounce back from setbacks, who do not assume they automatically know better than everyone else and are willing to learn, who tend to keep an even keel and not have excessive reactions to losing or winning, then you are among those most likely to succeed as a DIY investor.

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