Investing as a hobby 5 comments
(P.S: Sorry for any disturbances the advertisements above may have caused you)
Many people see investing as a hobby which they are happy to read up on and put in some of their money. It is a healthy diversion from the normal routine of everyday work, and of course it provides an alternative stream of income if things go well.
To hell with this mentality. It tends to lead to over-indulgence and ultimately things could go the way of most hobbies --- a whole lot of enjoyment through the process but no financial rewards to show for it.
Let me explain what I mean by over-indulgence. A useful metaphor is how a mother treats her precious child. Whatever he does is seen through rose-tinted lenses, even when it is abhorred by people around (such as bawling on public transport); the result is that he is spoilt by his mother. If one does not critically appraise his current stock portfolio constantly, he is likely to end up with several spoilt apples in his basket as well, unless he is an expert stockpicker and/or is very lucky. For those who do not see investing as a business with risks that must be mitigated, but rather as a hobby that they try to enjoy, I believe they are placing additional psychological barriers against trimming non-performing stocks, because by selling and realising the loss their original judgment will be shown to be wrong and somehow this will diminish their enjoyment of the investing process (nobody likes the feeling of being shown down). So they hold on in hope until it is too late.
Viewing investing as a hobby also has the effect of devoting too much effort to it, with the consequence that one loses focus and a sense of priority. What I mean is, one might lose perspective of the key focal points in the investment process (such as stock selection, monitoring, making trading decisions) and haphazardly read up on anything under the sun concerned with investing, for the sake of indulging in the hobby. Losing focus is a underestimated problem; energy is dissipated in aimless pursuit in the absence of a general plan that inculcates more mental discipline.
Ideally one should be able to concentrate on investing as a full-time business. However, the necessities of life mean that one can only allocate a portion of one's time and energies to it. No matter whether it is part-time or full-time, the importance of adopting a calm and professional approach to it cannot be overstated. In fact, I would think that being emotionless about the investing process is preferable to approaching it with enjoyment.