By most measures, I started my investment journey relatively early, at the age of 24. (Let’s not talk about ILPs…urgh!)
And that was a year before I graduated from university. But seriously, I always thought it wasn’t early enough, considering how much I had read up on the topic of personal finance and investing since I was like 16? (And obviously, just missing out on the post-2009 run up. 😕 )
But recently, investing early seemed to have lost a little bit of its sheen, as several financial bloggers in our local community have come out chastising some “very young” investors who had “neglected” their studies. Less time to study as most of them are working part-time to build up their capital for investing.
Even though he criticism appears rather warranted, my view is that since these young investors cannot see the value of their current education, they are going to channel their energies into something else, and better “investing/trading” than most other activities I could think of. Here’s why:
Many of the best investors started young
Peter Lynch socked away some money working as a caddy in his youth and when he was in college, invested about $1,000 into a company called Flying Tiger. He was long on the air freight industry and he was rewarded handsomely. The stock became a ten-bagger and paid for his graduate school.
In his early teens, Jesse Livermore became a trader to escape a life of farming. At the age of 15, he had reportedly produced gains worth over $1,000, which was considered big money in the late 19th century.
And of course, Warren Buffett. At the ripe old age of 11, Warren pooled his savings with his elder sister and bought six shares of oil company Cities Service at $38 per share and that was in 1941.
I have realised that the very best of whichever trades generally had little balance in their lives, even at a young age. With the focus and the vision they had, it was really impossible for them not to have started early.
More time to learn from your mistakes
Back to Warren. Even though he was quietly confident that Cities Service was undervalued, he was hugely affected when the stock price plummeted soon after his purchase. It didn’t help that his elder sister Doris badgered him constantly about the losses. So when the share price rebounded to $40, he was relieved to be able to sell it at a small profit.
Fans of Buffett should know what happened next. The stock quickly soared to $202 a share and young Warren brooded over the additional $486 he would have made had he been more patient. Another big lesson he learnt was about investing other people’s money and how it might make somebody upset at him when things didn’t go as planned.
All these at the age of 11. 😉
To be brutally honest, there’s little difference between gambling and investing. Other than the fact that the odds greatly favour the punter in the stock market compared to the gambler in the casinos, there’s still every chance one could lose everything. Especially trading, where one usually engages in leverage.
It’s better to lose everything when you only have $1,000 compared to when you have $100,000 at a later age. And there’s much more time for one to bounce back. Not to mention learning the important lessons early and finding out more about your emotional psyche.
Investing could be the impetus behind a renewed interest in studying
Sometimes, studying seems really irrelevant. It’s really hard to imagine how knowing more about second order derivatives and the nucleus composition of potassium is going to help us when we step out into the society. 😉
But if one is in the stock market long enough and wants to have a better shot at valuing a stock and it’s business, he knows that grasping the accounting language is necessary. So instead of languishing in subjects or majors he had no interest in, he could pursue the accounting subject with fervour in polytechnics or universities.
Extraordinary compounding effects
Typical personal finance books like to do this:
“If a young investor invested $10,000 in the S&P Index at the age of 30 and assuming a return of 10% a year, he would end up with almost $160,000 at 60. Contrast that with him delaying the start of his investing journey by 10 years. Even if he had invested $20,000 in the S&P Index at the age of 40, he only ends up with about $120,000.
What happens if we bring forward it by 10 years? (And it’s not impossible to save $10,000 at 20 in Singapore since we are either given an allowance during National Service or we could work part-time during our late teens.)
The young investor starting at 20 with $10,000 would end up with more than $400,000 @60, more than twice the amount if he had delayed his investment by a decade.
If you’re still not convinced about the merits of starting early from this example, then probably nothing will. 🙂
And I haven’t even included the merits of an early semi-retirement if one starts early enough. 😉