During times of economic turmoil and stock market nosedives—as happened in 2002 and 2008—a lot of people are afraid to open their investment statements. They don’t want to know how much money they’re losing.
It’s a sad thing to watch. And it’s a sure sign that they didn’t perform their due diligence and invest in what they know, enjoy, and can control. We call this strengths-based investing, or “strengthsvesting” for short.
Warren Buffett is the premier example of strengthsvesting. Like a lot of investors, he’s heavily invested in the stock market. But unlike most investors, he actually likes it when the stock market goes down. During a market downturn, Buffett told CNBC in an interview, “I like buying [the stock market] as it goes down, and the more it goes down, the more I like to buy.”
He also admitted that the day before that interview he had bought stocks during a 238-point market drop. “If you told me that the market was going to go down 500 points next week, I would have bought those same businesses and stocks yesterday,” Buffett said of the purchase, “I don’t know how to tell what the market’s going to do. I do know how to pick out reasonable businesses to own over a long period of time.”
Investing in your strengths and performing your due diligence will give you that type of confidence that allow you to look bad times in the face and without flinching. You’re not worried about losing money because you know you’ve done the necessary work beforehand to make sure it works out within your unique financial architecture.
We learn from Warren Buffett and other successful investors that investing isn’t a simple matter of throwing money into the market and hoping and praying it will go up. If your success in an investment is entirely dependent on market cooperation, you’re not investing; you’re gambling.
Why do some people always seem to make money in the stock market, when others lose their shirt? How is it that one person can turn a piece of real estate into a monthly cash cow, while another person loses money on a nearly identical property?
The answer is simple: risk is in the investor, not the investment. Risk is not tied solely to an investment’s traits and characteristics. Rather, risk is also a function of the knowledge, talent, and skill that the investor brings to the investment. An investment that would prove unreasonably risky for one investor might be only slightly risky, or not at all risky for another investor.
In my next post, I examine the critical principles to understand to mitigate your risk with investing.
In the meantime, I’d love to hear your thoughts on investment, risk and reward: what do you think about your own strengths as an investor? And where can you do better? Thank you for sharing.
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