This is the second lesson regarding investments. And though it belongs to the set “Before We Really Start”, it is important, since here we are going to discuss the methodology of learning.
What to expect
First of all, get rid of delusion that I can teach you. The truth is that you can learn, but I can just assist you in this process. Same as many other things, investing can be learned by yourself but not taught by someone else.
Second, do not expect that you will be given everything. The truth is that nobody knows everything on investments. But you will be given enough to start your own way.
Some say knowledge is power. Very true, but with a huge niggle: only with practice. Everything you know theoretically doesn’t count, because it cannot change your life until it is used. Do you know the difference between knowing and understanding? Yes, it’s practice: Knowledge -> Practice -> Understanding. No practice downplays your knowledge.
The best illustration of this I can remember now comes from the movie “Men of Honor”:
“Boyle’s Law describes the behaviour of gases under varying amounts of atmospheric pressure…
Now why is this important to a diver? Forget to exhale on the way up, and your lungs explode.”
And when I say the practice I do not limit its meaning to just problems and quizzes from the lessons. I actually refer to making real investments.
Learning is typically an iterative process. You build some model based upon your current knowledge and then test it. Your result helps you to make conclusions and update your knowledge. This, in turn, makes your next model more successful:
The key here is not to quit and repeat iterations until you’ve built your understanding. Why am I pulling Captain Obvious? Because it suddenly appears that we, who fell gazillion of times before we learned to walk and kept trying until got it done, we love to quit and do not apply the same approach to learning more complicated skills, like investments, business etc.
This applied to investments means that you based on your current knowledge make investment decisions, then make investments and build your portfolio. Then you from time to time review your investments, make appropriate conclusions (lick wounds and correct your portfolio!) and update your knowledge:
A word of caution
Be ready for losses. Investing without losses is a chimera!
Be ready to really learn, i.e. to really change your understanding by making mistakes. This path is a great school where your learn a lot. And at the end instead of diploma or certificate you will get a good investment portfolio and financial freedom!