Introduction

When first getting into investing, one of two situations is very common: Either you feel so overwhelmed by the whole damn thing, that you quit your investment journey at the broker sign up. Or you are a bit too sure that you are smarter than everyone else and go complete bunkers. In this post, I cover my top 6 fundamental investment principles that prevent both of these scenarios from happening. None of the following is financial advice.

This post covers...

🍀 What is investment success
🕰️ Principle I: Time in the market is more important than timing the market
📉 Principle II: Make mistakes early
💯 Principle III: Think in percentages, not in sums
🛡️ Principle IV: Don't lose money
🧠 Principle V: Invest in yourself
🤑 Principle VI: You get paid for the value your provide

What is investment success

When getting started with investing, it is easy to fall into the trap of doing so for the sake of financial profits. Because what else would money investments be about if not profits? In my opinion, this is too one dimensional. Especially at the beginning, the biggest gain is not direct money profits, but rather knowledge and experience. Although these two things ultimately have the same goal of allowing you to make real money profits down the line, focussing on knowledge and experience is the first step towards acknowledging investing for what it is: a longterm game. Without the right foundation of knowledge and experience, it's not much more than a gamble.

Knowledge is all about understanding the different markets, asset classes and the systems behind them. Experience is knowing what it feels like to see your own money go up and down.

Principle I: Time in the market is more important than timing the market

"Buy low, sell high". Why is this phrase not in my list of investment principles you may ask. While it is obviously beneficial to buy assets low and sell them high to make a profit, I don't believe this should be the central focus of getting started with investing. Since knowledge and experience are more important, prices of assets are really not that important at first. By simply being in the market, you have commenced the journey of confronting yourself with the topic of investing, thus have started your journey of gaining investing knowledge and experience. Both of these things are far more valuable than a couple of extra quid of profits.

Principle II: Make mistakes early

This principle is very closely linked to the previous one. Making mistakes early is all about understanding the value (the financial value down the line) of making dumb, rookie mistakes early, so that these same mistakes can be avoided once you have decent amounts of money invested. This again is about prioritizing experience and knowledge over short-term profits and instead playing for the longterm. To not be discouraged to follow this principle, it is advised to initially only invest money you are comfortable with losing entirely.

Principle III: Think in percentages, not in sums

Transitioning from knowledge and experience to practical tips, the first one is to think in percentages instead of sums. Instead of saying: "I am going to invest 50 quid in asset x" it's saying: "I am going to invest 2% of all the money I currently have into asset x". This way of thinking aims at avoiding to be discouraged from only being able to invest small sums of money or from investing too much of the money you have. Investing 500 quid into a volatile asset class for example is neither reasonable nor unreasonable at first. It entirely depends on how big of a chunk of money of your total net worth it is.

Principle IV: Don't lose money

Although this principle may seem to contradict principle one and two's focus on knowledge and experience over direct profits, this forth principle is actually not saying what you may expect. Since you can't (at least not with full certainty) predict the markets and thus the movement of your portfolio worth, this principle is not about what happens to the money inside your portfolio. Instead, this principle concerns itself with what you do with the money outside of your portfolio. An example of lost money would be a pair of headphones. Once you pay for it, the money is gone and doesn't come back again. Spending money on stocks on the other hand, - even though there is no guarantee for profits - there is the potential for returns. Spending money on a course is another good example. The money itself may be gone once you pay for the course, but its value gets transferred into a skill that may allow you to make more money than the course initially cost, further down the line - which leads me straight to principle V...

Principle V: Invest in yourself

... What a great transition, huh? Principle V questions whether investing in yourself may actually be the best asset class to invest in. The idea: instead of focussing on gaining direct profits on your portfolio, focus on increasing your ability to make more money. This can be achieved by developing new skills, by reading books, doing internships, taking courses, becoming an expert and thus being able to charge higher prices for what it is you do to make money. Instead of trying to achieve x percent in portfolio growth, it is trying to achieve x percent in income growth which then opens up new investment capital.

"We want to spend money on increasing our ability to make more money rather than screw around with 3% returns from the S&P 500"
Alex Hormozi & Ali Abdaal - The Deep Dive Podcast

Principle VI: You get paid for the value you provide

This last principle may be the most important of all. It is about understanding that even though it may be possible to passively make money through stock investments while sleeping, the money you make is almost always bound to the value you provide and the difficulty of problems you solve. And that goes for stock investments, too. With stock investments, you solve the problem of providing money for a company to develop their business. You get paid with the potential for returns on your investment should the company be successful. This is important to not fall into the fast-money-trap. You always have to provide value to earn money. Investments aren't free money.

Conclusion

Investing and money in general are topics with endless horizons. And whilst it can be intriguing to seemingly passively make money through investments, at the end, there is no short-cut. Wealth is something that is built over time and the x quid of net worth your name may hold someday, it has to be earned first - one way or another. Investments can be a part of this process, but they surely won't make you rich over night, unless you win the lottery and get lucky in a gamble.