I have come to realise that DIY investing is my hobby and not just a clinical exercise in financial self-preservation. That’s been the case for a while, but it’s something I’ve only recently thought out loud.
I think the same is true for many other investors who direct their own affairs – not because they must, but because they gain a sense of deep satisfaction from doing so.
I don’t deride hobbies as frivolous. I believe they play an important role in the lives of many people: As a creative outlet, as an anti-stress mechanism, and as an arena of personal control.
Bringing unbridled enthusiasm to bear upon an aspect of life can be highly rewarding, of course. But in the investing stakes there are clear dangers if passion is unleashed and unchecked like a mad dog that loves chasing traffic.
My name is The Accumulator and I am a DIY investor
DIY investing didn’t start out as my hobby. It began as a means of financial rehab. But over time, investing has dug its hooks in and come to fill all the niches formerly occupied by more conventional pursuits.
It’s taken me a long time to recognise that I was up to my neck in it because I was enjoying it – probably because well-adjusted human beings aren’t meant to enjoy investing.
Oh well, you have to recognise the signs sooner or later.
[1]
How to spot that investing is your hobby
Can you tick off these telltale signs of passionitis?
It’s a form of time travel
Admittedly one-way time travel, but all the same it makes the hours disappear – whether you’re catching up on reading or tending to your portfolio like it’s a prize flower bed.
There’s a sense of progress [2]
Investing enables you to embark on a grand narrative. “After X years I’ll be able to pay off my mortgage. X years after that I’ll be financially independent.” A plan begins to unfold in the same way it does for a man with a loft, a Hornby catalogue, and visions of the golden age of steam.
It’s an outlet for personal achievement and creativity
Regardless of the frustrations of the workplace, you can continually build your skills and test your mettle in your chosen domain. Taking on challenges at your own pace and, as the milestones pass, traversing the ground ever faster on a magic carpet of soaring confidence.
There’s something to show for it
You can collect mugs, medals, or asset classes [3]. Either way the objective is to expand the borders of you, and to build something tangible where you are king of all you survey.
You can master the rules
Any hobby is to life as a boating lake is to the wild ocean; a placid subset of challenges that can be understood, quantified and seemingly controlled in a way that the chaotic complexity of the wider world defies. Of course, the capital markets are as good an analogy for the turbulence of life as you can hope to get, but we passive investors respond by seeking surefire strategies and rules of thumb [4] that enable us to cope.
There are others like me
Even a vintage lawnmower restoration enthusiast will eventually leave the shed to seek out like minds. And when you meet, you have an instant bond. You can talk for hours about the intricacies of your field. You’re an expert holding your own with other experts. There’s no awkward groping for conversation beyond the weather. You’ve found your people. Friends, rivals, mentors, pupils, heroes, villains1 [5] – the full cast is out there – whether they be on Monevator [6], The Motley Fool [7], or The Bogleheads [8].
It doesn’t feel like work
This is something you do just for you. It’s your time, your space, and no one else gets to call the shots. You take the responsibility, and whatever you achieve you’ll take 100% of the credit.
But if DIY investing is your hobby, what implications does all that personal fulfillment have for your long-term financial well-being?
In the red
On the negative side of the balance sheet, The Dalbar Study [9] reveals that the average equity investor2 [10] has managed to underperform the market by 4.32% per year, for the last 20 years, thanks to an incorrigible need to chase performance.
The best advice for most investors is to draw up a passive investment strategy [11] and do very little except buy, hold, and rebalance [12].
Of course, the hobbyist who loves to invest is going to want to put all that knowledge to good use. Perhaps reveling in the glory of beating the market [13] or collecting funds like stamps to create a portfolio more complicated than a matchstick palace.
You could always write a blog [14] instead! Or develop other mind games [15] that keep you locked in the proverbial shed rather than throwing yourself off the nearest cliff like some crazy pioneer of early flight [16].
Enthusiastic amateurs love to fantasise about how they’d measure up against the big boys. But there’s a reason why Gentlemen vs Players fixtures no longer exist. There’s no sport to be had in amateurs being trounced by professionals.
There’s certainly money to be made in the markets. But a retail investor, no matter how clued up, stands about as much chance against the stock market big guns as a Victorian aristo relying on his huge beard and stripy blazer to face down the Australian pace attack.
The simplest way to avoid being someone else’s chump is to avoid playing the game. Accept your amateur status by taking the ‘that’ll do nicely’ market return of a diversified portfolio of index trackers [17].
In the black
On the plus side, DIY investors aren’t going to feel the sickening dread that most people feel every time they think of the retirement they haven’t planned for and the years that have ticked by.
We know what to do [18], what it takes, and we feel like our destiny is in our own hands. Having built up a modicum of investing nous, we’re not going to be taken in by the syrupy promises of charlatans.
Well, not common or garden charlatans anyway. It’ll take a really sophisticated swindler to get us; probably one with his own hedge fund and infallible risk management algorithm.
If our life-situation changes, we’ve got a bank of assets built up to cushion the blow, and we have the knowledge to lifestyle our portfolio [19] as time goes by. We shouldn’t get to age 65 with a pension fund fit for a 20-something who ticked the wrong box 40 years ago.
Best of all, we’re not putting our money in pewter figurines, novelty chess sets, or any other money pit [20] masquerading as a way to stand out from the crowd. Our cash goes towards building our wealth, not destroying it.
Assuming we don’t cock-up royally along the way or disappear in a flock of black swans.
Take it steady,
The Accumulator