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Skill, discipline or temperament

My FatFIRE

TLDR: What is more important for a FIRE investor - Skill, discipline or temperament

The cop out answer to this question is all of the above. But if someone has a gun to your head and have you choose one, which one would it be

Skill, discipline or temperament

If you are relatively new to the world of investing and you reach out to the investing forums be it reddit or twitter or financial blogs, the common advice that you are bound to get would be as follows

  1. Track expenses

  2. Budget

  3. Pay yourself first

  4. Reduce lifestyle creep

  5. Read up on investing principles

  6. Follow the advice of investment gurus

  7. Learn to perform fundamental analysis

  8. Dont chase fads

  9. Follow the KISS  (Keep It Simple Stupid) principle

  10. Invest for the long term

I have written several posts (here, here and here) around these topics on this very website. All of these above points are valid and if you are a FIRE pursuant then these principles will definitely help you in getting there.

These few pointers are something most people can follow, these are not easy but can be done.

So if that is the case,

  • Why aren’t we seeing more millionaires ?

  • Why don’t more people have a bigger retirement corpus?

  • Why is it difficult to follow these simple rules?

Most investors never make the money that the funds they invest in make. Almost never. The reason why most investors don’t do so well even though their invested fund performance is not bad is because they

  • Start SIP (Systematic Investment Plan) at the wrong time - enter at the market after a strong bull run

  • Stop SIP (Systematic Investment Plan) at the wrong time - stop investing during the drawdown or recession

Holding period for mutual funds

  • Buy high Sell low - Even worse than starting and stopping an SIP, buying at the top because of the market euphoria and selling because of fear of recession

  • Lack of goal based investing

  • Lack of clear withdrawal plan

  • Incorrect allocation in equity/debt/real estate/gold without a clear understanding of ones risk appetite

For 90% of the investors, a portfolio mix of index funds and debt funds would be all they really need. There is no need for research, analysis or reading annual reports.

Conclusion

You can read all about the different diets - Keto, paleo, atkins. You can learn all about the different types of exercises - cardio, pilates, cross fit, yoga, Tai chi. But unless you are disciplined with your diet and work out regularly, you will not lose weight. Same goes for investments. To be a successful investor you need the right temperament and discipline more than skill.

Happy Investing.