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[Mindset Change #3] - Manage your investment managers, not your investments
Giving up on investing or doing it completely by yourself is not the answer, the best place is somewhere in between
I look around today, I see most of the people have either completely given up on investing or are trying to take all investment decisions by themselves. In this chapter I make a case on why these approaches are wrong and what you should be doing instead.
What successful CEOs do?
There are two types of CEOs - ones who delegate, ones who don’t. The ones who don’t delegate and prefer a more hands-on direct involvement in all things - end up spreading themselves too thin and lose control of the big picture.
However, the mantra of being a successful CEO is really to find leaders who are better at handling specific responsibilities than the CEO himself and delegate all the details to them. All that the CEO has to do is ensure that the leader is well equipped with resources, has clear objectives to chase and monitor if those objectives are being met. The best CEOs will pay top dollar to hire such leaders and demand top performance. This ensures that all the functions of the company perform well while the CEO shepherds the company in the right direction by focusing on big picture stuff - vision, culture etc.
You are the CEO of your life - think like one
You are also the CEO of your life. You can’t do all the things yourself - you will spread yourself too thin, become ineffective and lose out on the big picture. Instead you should prioritise what’s important for you, focus your time and energy on that. The rest of the stuff can be delegated to experts who can perform certain functions better than you. Most of us already rely on such experts - lawyers, accountants, gym trainers, plumbers, doctors etc. All we have to do is to make sure the experts we engage are competent, trustworthy and delivering results.
This approach to life is simple, intuitive and something you are already following in many areas of your life. But is it something you are also following for investing? In all probability, the answer is no.
In Investing, delegating is not that straightforward!
The problem with investing is that it’s an extremely fuzzy or vague topic where everything looks right and wrong at the same time. It feels a lot like politics - you can have convincing arguments for and against any topic and finding the absolute truth looks almost impossible.
This perceived fuzziness leads to people making two very common types of mistakes - 1) Trying to take all the investment decisions yourself, 2) Totally giving up trying to understand investing. I would like you to pause and reflect - hand over heart - if you fall in any of these 2 categories. If yes, read on!
Why you should not be investing all by yourself?
Many people like to decide for themselves which stocks/bonds/cryptocurrencies/start-up to buy, how much to buy, when to sell etc. This is okay as long as you are ticking the boxes on the three points below -
Do you have the time for this?
Do you have the expertise, or willing to learn?
Do you love investing? Does it feel like play (instead of work) to you?
If the answer for all the three questions is Yes, by all means go ahead and invest by yourself. But if any of the answers is no, then you are better off delegating it to an expert*.
There is a good financial reason for delegation. For ~1% annul fee on your investment amount, you can get the best experts in your country to invest on your behalf. It is reasonable to expect that an expert will generate better returns than an amateur over the long term, net of fees. Also, the time and energy spent towards investing can be better spent on your existing full time career. That can be transformative to your wealth while investing by yourself will only have incremental impact.
Please don’t totally ignore investing as well
Many people don’t put any thought about where they are investing. They just take some default safe choices, ask around and do what everybody around them is doing. There are three common reasons why I see people doing this. They are on the lines of -
Is it worth it?
Investing feels like boring work (like filing taxes)
Investing is vague like politics - better to avoid this rabbit hole.
Take a pause and think if you have some of these doubts in your mind as well. Chances are you have and it’s fine. This book will offer you a fresh perspective.
You should take interest in investing. Why? Because if with better management, you are able to earn just 2% extra returns per year starting in your 30s - the extra wealth you generate will be worth 5-10 years of working in a job in your 50s (the math is explained in detail in of the later chapters). And yes investing is vague and fuzzy, but this book will help demystify things by - “Taking a few hours of your time and slashing the fuzziness about investing in your mind by 80%”.
Manage your investment managers, not your investments!
Don’t try to take all investment decisions yourself - most likely its not worth it. But don’t give up on investing as well - thats also likely a wrong choice for you. What you should be doing is taking the middle ground.
Delegate investing to expert managers, but learn how to find good managers and assess their performance. By ‘manager’ I mean any intermediary that takes investment decisions for you - it can be your equity mutual fund, debt mutual fund, personal financial advisor, smallcase manager, your bank’s relationship manager - anyone. Be informed, understand the fee you pay and demand performance. Spend 1 hour every quarter on this - and earn enough extra money to potentially retire 5-10 years early. Read on and I will show you how.
* A lot of people want to invest by themselves because they find it interesting and it helps them better understand the world around them. However, they don’t have the time or expertise to understand investing. In the case, go ahead - allocate a small % of your wealth towards investing by yourself and keep the juices flowing. But for the bulk of your wealth, find the best managers out there and bet on them.