5 AMAZING WAYS TO AVOID INVESTING AS A "TOURIST"

The global economy is undergoing such a turbulent time as we battle covid-19. The uncertainty occasioned by the pandemic makes it even more imperative to avoid "tourist" investing.

"Tourist investing is an investing phenomenon where investors pick stocks or make investment not backed by philosophy or research and without patience but freak out at the least volatility and end up being fooled by randomness; losing their investment and leading to dissipation of capital."- Aaron Packeys

Despite this phenomenon, the contrarians have always won even when "there's blood on the street". To win in these uncertain times, investing as a tourist will be more disastrous than ever.

To help you, here are 5 time tested ways to avoid investing as a tourist:

1.    Be long-term focused. Do not rent stocks, own them.

"The New York Exchange is the only store in the world where consumers sell stuff when it goes on sale." - Warren Buffett.

This is so ironic but so true. Ordinarily, consumers go to the market to buy and not to sell. The truth is no one can beat the market to make a fortune. So be patient, think long-term as it precludes you from reacting to irrational volatility in the market.

Those who rent stocks hoping to make a fortune are always fooled by randomness. Nassim Nicholas Taleb makes it succinct in his 316-page book “Fooled by Randomness.” Those who rent cars or apartments, do not own them, they lose them in the end. Own the car or the apartment, otherwise you will remain a tourist. 

To avoid being a tourist you ought to be long-term focused. This is so because “the longer the view the wiser the intention” as stated by the "Sage" of Omaha, Warren Buffett. Be convinced of the investment before you make it, and when you have done that, stay with it, own it rather than rent it.

2.    Read disclosures. Legal and risks. Read the fine print.

Tourist investors mostly do not read the fine print. They are led by the media based on what the ads and promotional activities tell them. However, it is not the norm for companies to list the inherent risks associated with their business in ads. Their intent is often to convince you by giving you reasons why you ought to buy.

CEOs, salespeople and marketing executives are paid to sell the investment products of their companies. Their main preoccupation is to sell more by convincing you, the buyer. They are expected to highlight the positives and not the risks and negatives.

Do not buy any investment product without reading the prospectus as approved by the regulators, to note the risks and negatives before investing. Get to know the product, read about it, and use it if possible, before making commitments.

 3.    Do your own research. Read the offering memorandum.

The best investors of all time will not buy any stock or invest in anything unless they are convinced after their research. Buffett said, "Read the offering memorandum, get to know the benefits and risks."

Do a one pager document on each stock you want to purchase or investment you want to make. Start with fundamentals, followed by valuation and lastly, do the technical analysis. This is extremely important as it will become your basis for evaluation after some time.

After developing your one-page document, ask this multi-million-dollar question “will this stock or investment be relevant in the next 3-5 years?” You must answer this question and provide the reason before making the decision to proceed.

Be ready to roll up your sleeves to do the work of modelling and valuation before making the investment. By following this, you would avoid being a tourist investor who most often underperform the market.

 4.   Be unemotional. Be logical. Do not chase the waves.

Warren Buffett puts it nicely that “be greedy when others are fearful and fearful when others are greedy. This means one ought to think differently to be successful at investing”. It simply means, be a contrarian.

Dale Carnegie makes this profound statement:

“When dealing with people, remember you are not dealing with creatures of logic, but with creatures of emotion, creatures bristling with prejudice and motivated by pride and vanity.”

Michael Levine, of Psychology Today, who has represented Hollywood’s most powerful names including Michael Jackson, Bill Clinton, Nike, and Sean “Diddy” Combs had this to say: "it is said that emotions drive 80 percent of the choices Americans make, while practicality and objectivity only represent about 20 percent of decision-making."

So as an investor, your decisions are predisposed to 80% of your emotions than logic. However, those who win act differently. For example, after he was ousted as CEO by the board of PayPal; Elon Musk actually invested more money in the company. He did not allow emotions to cloud his judgement about the prospects of the company.

Whilst creatures of emotion are likely to act as tourist investors, those who avoid market sentiments go ahead to make a fortune, just like Warren Buffett, Elon Musk, Steve Jobs and those that put a dent in the universe.

If you are ready to put your dent in the universe, then please close your eyes and slowly listen to this;

"Widespread fear is your friend as an investor because it serves up bargain purchases."- Buffett

In other words, be happy and do not freak out in times of volatility, as it gives you the ability to buy stocks when they are on sale.

All credits to my MBA Professor, Chris Haroun of Haroun Education Ventures.

5.    Be a pain in the neck. Ask questions.

Ask the right people the right questions and demand answers to your queries.

Before you pick a stock or make any investment, make sure every shadow of doubt is cleared. Be ready to listen to earnings calls, attend shareholder meetings, visit the investor relations section of the company website, ask the necessary questions and demand answers.

By 2010, executives of the bailed-out banks paid themselves record bonuses while investors had lost their homes. These record bonuses unfortunately justified the reckless behavior of many bankers. Bloomberg.com listed banker bonuses as "the heart of an incentive system that rewarded greed and excessive risk."

Until you are ready to be a pain in the neck, and do your own research and never listen to anybody else's investment advice, then the likelihood of outperforming the market is low.

Conclusion

It is an established fact that Ponzi schemes, hidden and ridiculously high fees associated with mutual funds, chasing after stock waves could render your hard-earned money worthless, as no one can beat the market in the long run (without doing your own research).

The vaccine to this infectious virus of tourist investing, even "when there's blood on the street" are rooted in having a long-term view of investment, reading all disclosures, doing your own research, emotional mastery and asking the right questions.