Tuesday, May 4, 2021

A Structured And Holistic Way To Learn Investing: Supplementary

After my post on the above topic came out, I have had encountered numerous queries in this area. The questions were varied, but after aggregating I could group them generally into three categories. There were some which were unique to the individuals’ situations, so I would leave them out.


Category #1: Is it OK to attend courses?


This was the most common line of questioning I got, which I believe it stems from my post’s biasness and impression on self-learning via available offline and online resources.


I do recognize the differences in every individual’s learning styles and methods; some prefer to go through on their own, while some prefer someone to guide them along, and others may want to have a hybrid of the former two.


As emphasized in the earlier post, not all courses are suitable for everyone, as the course structure may have a few assumptions in place, like the participant having some underpinning knowledge of certain topics to be taught. Imagine a newbie who had never invested before learning about fundamental analysis; if he/she has a business/finance/accounting background, that is fine. If not, however, he/she would be confused even by the words “debit” and “credit”.


For my case, I did attend a course to further my knowledge on investing and the things related to it (see here on my experience in attending Nanyang Poly’s Specialist Diploma). In my opinion, the course option would be suitable after you had completed Stage Two, where you had at least mastered the required info needed for investing and be ready on what the trainers/lecturers will be talking about. You can take courses in advancing and obtaining Stage Three knowledge, and/or Stage One/Two to reinforce on what you had learnt and/or fill in the gaps that you may have missed.


Category #2: Different materials telling me different things on investing. Which should I follow?


In our primary and secondary academic education journey, most of us were used to having absolute answers to questions, e.g., 1 + 1 = 2 and hydrogen + oxygen = water. The trouble about investing is that there is more than one way in going about it, and the range of results obtained is infinite.


To start off, my Bedokian Portfolio make-up already differs from other known portfolios like the 60/40, Bogleheads’, etc. Or for fundamental analysis, there are many ways in valuing a company. Especially if you are learning from the ground up, you will find that many authors, writers and bloggers have different methods, styles and means, and their results are vastly different.


Frankly, there is no one ultimate answer in the world of investing, and the reason why is that the factors in play that govern the answer is in a constant flux. Add in different perspectives from various players, it is as random as you can get.


My answer to this category is, after going through Stages One and Two, find one methodology and style that you are comfortable with, and stick to it. It could be from a single source (e.g., 60/40 equity/bond) or a mix like the Bedokian Portfolio (which itself is cobbled from a few portfolio make-ups and investing styles). Tweaks and adjustments are OK as you go along, but try not to deviate drastically from the original, e.g., from 60/40 equity/bond into 50/50 crypto/cash.


Category #3: Do I need to know “everything” related to investing?


The word “everything” here is a cumulation of styles, methodologies, financial instruments, strategies, etc. A couple of examples would be like “do I need to know fundamental analysis if I opt for passive investing” and “do I need to know about options and futures”. Basically, it is a question of whether we need to have every ounce of investing knowledge stuffed in our brains.


While the theories behind learning, knowledge and application warrants a separate reading, I can put it simply in the following “knowledge tiers”, namely:


  • Tier 0: No knowledge of the topic
  • Tier 1: Heard of the topic
  • Tier 2: Understand the topic
  • Tier 3: Able to apply on the topic


Ideally, we should go for Tier 3 in all aspects related to investing, though it is not necessary. Depending on individual preferences, one can get started in investing with just some Tier 3 and others Tier 0. I have met a seasoned investor who knows nothing about option strategies, and I have also seen a passive fund investor with zilch accounting knowledge. Both are currently doing well in their respective investments.


Using the Stages in the previous post, for active investing, my preference would be at least Tier 2 for Stages One and Two to start, and at least Tier 1 for Stage Three going forward. For passive investing, you can afford to go Tier 1 for topics like accounting, economics and fundamental analysis, and Tier 2 for portfolio management and asset classes. 


While I had recommended the basic level of investment knowledge, do not just stop there. Learning, like investing, is a journey, and I hope you could pair these two together going forward.

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