This article was first published in the National Post on August 19, 2023. It is being republished with permission.

by Tom Bradley

I had the pleasure of speaking with a group of young investors last week. One of the lessons I tried to impart was that investing is different from almost every other aspect of their lives. It’s unpredictable and often counterintuitive, which makes it more difficult to be successful. Let me explain how investing differs.

Short-term feedback means little

In real life, immediate feedback is everything. Your behaviour is impacted by praise or criticism from your boss, hints from your spouse and constant input via emails, texts and notifications.

In investing, short-term feedback is usually meaningless. What the market did today, or even this year, has little to do with how successful you’ll be. Indeed, it can inhibit your progress by prompting you to make needless changes or veer off course.

At Steadyhand, we have an expression: “Last quarter’s returns are a good indicator of ... last quarter’s returns.”

There's no app for that

If you want to stream music, keep track of household expenses or check your sleep patterns, there’s an app for that. There are many investment apps, too, but they generally don’t line up well with the long-term nature of investing.

Market updates and stock quotes are about right now, not 10-plus years from now. They shorten your view when ideally you should be looking further ahead and giving your strategies time to play out.

The best action is no action

Indeed, reading business news and checking apps increases your desire to act. You’re compelled to make something happen. But in most cases, the best action is no action, particularly if you have a diversified portfolio that matches well with your objectives.

Acting on news that’s urgent, but not important increases costs and distracts from your plan. Warren Buffett has said, “Wall Street makes its money on activity. You make your money on inactivity.”

If everyone is doing it, don't

If five people tell you to buy a Hyundai Ioniq 5, you can be assured it’s a good car. If those same five tell you to buy a stock, you should be wary.

When everyone is on the bandwagon, it means the good news has been widely disseminated, expectations are high and you’re most likely paying a premium to participate. Conversely, if everyone hates a stock, it’s likely that most of the bad news, and risk, is already baked into the price.

Investor sentiment is a useful tool, but like so many things in investing, it runs counter to human nature.

More features, less return

It’s easy to be dazzled by fancy features when buying a new car or phone. The more the better. Fancy investment products can also be intoxicating, but the impact on your portfolio is not usually as positive.

Generally, the more complex the product, the lower the return. There are two reasons for this. First, most structured products are designed to make investing more palatable by reducing volatility and/or eliminating the downside. Second, they’re more expensive. Strategies such as dynamic trading, leverage and currency hedging bring with them more mouths to feed in the form of product designers, investment bankers, options and futures traders, and prime brokers.

An example of this is index-linked notes sold by the banks. Because they’re guaranteed to not lose money, their stock market exposure is greatly reduced. There’s more sizzle than steak.

Forest versus the trees

It’s easy to research products you want to buy. It takes just minutes to know exactly what you’re getting. Industrious investors also have an incredible amount of information at their fingertips.

Assessing a company to invest in, however, involves all the unknowns that go with looking into the future. Decisions must be made on incomplete information because if you try to unearth every little fact, you’re likely to miss the stock’s big move.

No price tags

Normally, the things you buy have a price on them. The retail price, perhaps a sale tag, and the cost of shipping. Investors don’t have the same transparency. If you look up the word “opaque,” you’ll see a picture of an investment adviser. The investment industry seems committed to making it difficult to determine what your total cost is.

Likewise, it’s often difficult to determine how you’ve done. Some firms put returns on their regular statements, but most bury them away in year-end regulatory documents.

I’m hopeful that the next generation of investors has a better understanding of markets and develops disciplines that embrace the peculiarities of investing. Getting it right early will be very rewarding.