If you're a young investor, you're in a tricky spot. On one hand, you've got time on your side, with decades ahead for compounding your investments. A comfortable retirement is well within your grasp.
On the other hand, you haven't got the wisdom or the patience to benefit.
When you're young your life is full of milestones. You're never looking more than a year ahead.
- Finishing school
- Getting your license
- Finding an apprenticeship/ first year of uni
- Buying your first car
- Finishing your TAFE units/ that next assignment
- Finding your first rental house
- Getting your P2/Open license
- Getting your trade cert/ finishing uni
- Getting your first professional job
And that's great. Unfortunately, it's the worst possible mindset to bring to your investing. You're instinctively focused on the short term, what's coming 6 or 12 months in the future. You've never had to plan for the long term like 'how will I save $50,000 (or more, these days) over 5 years to get a house deposit?'
When I first started investing at 17, I didn't know much and just bought big and well-known businesses. Wesfarmers Ltd (ASX: WES) at $18. Macquarie Airports, now Sydney Airports Limited (ASX: SYD) at $2.20. National Australia Bank Ltd. (ASX: NAB) at $23. QBE Insurance Group Ltd (ASX: QBE) at $22, which I sold for a quick profit at $24 (fortunately, as it happens).
If I'd held all the businesses that I'd bought until now, I would have seen quite respectable performance. I didn't, of course. I was too short-termist in my thinking. And while that's the essence of being young, if you're investing you have to be aware of this tendency to action, and act in a contrary manner.
If I could say one thing to young investors it would be this:
Always try to think at least 3 years ahead. Try to commit to the mindset of owning a part of a business that will generate earnings for you year after year. If you're buying household-name businesses that you can understand, the risks are typically quite tame – and far lower than you think. Learn how to evaluate a company's debt and calculate if it is reasonable. Ignore fund managers in the news. They might sound super negative on a company, but what they usually mean is 'I don't want to buy Woolworths Limited (ASX: WOW) at $25 because I think it's only worth $22'. Inactivity, not activity, is one of the primary causes of good investment results for household investors.
