What is it good for? Absolutely…
I got an interesting question from a reader last week. They asked about what the recent Bank of Japan announcements meant and how we could take advantage of them going forward. What effects will the stimuli have on our lives?
I read this article shortly afterwards.
And to be completely honest, I don’t really know what the BOJ did or what they are going to do. Even if I did know, I don’t know what effect that is going to have on the economy, on exchange rates, on share prices.
No one does.
Lots of people make money off pretending to know, or guessing, or offering up theories or explanations, but they don’t really know either. If they did know they could make infinite wealth with that knowledge.
I focus on things I understand and can control:
- How much am I spending?
- How much can I save?
- What do I do with the money I save?
- How much am I paying to invest?
- What kind of portfolio do I need?
After a few instances of trying to be clever after seeing some piece of news (and failing), I now try to ignore news items and blog posts about ‘things that are about to happen’. Some of my less great hits? Buying Russian shares, buying gold mining companies, buying some Japanese chicken farm.
None of those ended well, because I didn’t really understand what I was doing and they didn’t match my long-term plan.
Remember that hundreds of thousands of professional investors, with education, training, resources, and time that dwarf yours, are looking at the same stories you are (they are also looking at stories you don’t get to see) and trying to get an edge. What makes you think you have an advantage over them?
The best advantage for the individual amateur investor is the freedom to choose the safe, boring, long-term option and stick with it. Professionals need to have a new idea, a big profit, and can’t ignore short-term losses. Amateurs can.
There was a news story last year about some research from Fidelity that found that their most successful investors were either dead or had forgotten they had an account, so they didn’t touch their investments for years on end.
So what can we do to take advantage of the BOJ’s fiscal easing? Nothing. Just keep doing what you are hopefully doing already: spend mindfully, save as much as possible, invest sensibly, and wait.
In twenty years time you’ll be glad you did so.
Any investing mistake stories? Leave a comment and gain internet glory 😉
Thought I knew better than the speculators on the Mothers Index. Thus went out and started short selling overheated stocks.
Very. Bad. Mistake.
Started losing control of my own self control, and hence much of the initial capital. Was only the recently LINE IPO that almost all of the losses were recouped.
Swore to myself never again to dabble in the secondary market.
Eeek. Well, not as bad as my chicken farm 😉
This is a great post! This really puts a lot of things into perspective, especially the point that no one really knows what’s going on, even though they think they do.
I used to really study the news when playing the foreign exchange market and try to plan my actions based on things that I thought I had analyzed correctly, but none of it ever really worked, and I thought it was because I didn’t understand the news well enough to predict the foreign exchange market. Now I just skim the news, look at what countries are the most featured and use that as an indicator of what currency pairs to watch for volatility during the day.
Thank you so much!
My pleasure. Glad it was helpful.
The problem with almost everything is that the market’s reaction to something isn’t predictable, as we saw with the BoJ stimulus (you would have thought the stimulus would depress the yen, but because it was less than the market was expecting, it actually inflated it -or did it? Who knows what really happened?).
You’re a braver man than me though, doing FOREX 😉