Is financial management a difficult task?

Yes.Many people have been managing their finances for years,yet they still struggle to grasp the trajectory of market development and identify the next direction for investment.Even after suffering losses from selling off their investments at a low point,they find it hard to control themselves and may fall into the same trap twice or even multiple times.

Is financial management a simple task?

Yes.In fact,there are no profound principles in investing and managing finances.Countless professional investors often repeat the same few pieces of advice: delegate professional matters to professionals; trust in the power of time and hold long-term; and diversify your assets to mitigate the risks of a single market.

The "difficulty" of financial management lies in the fact that it is easier said than done; while the "simplicity" comes from the clarity of the fundamentals.Today,let's use a few short stories to discuss the essence of investing and managing finances.

01

From "The Tortoise and the Hare" to the "Fast" and "Slow" of Investing

Almost everyone knows the story of "The Tortoise and the Hare," where the hare,who was good at running,lost due to complacency and underestimating its opponent,while the tortoise,with less natural talent,won the final victory through persistence.This story also contains the concepts of "fast" and "slow" in investing.Amazon CEO Bezos once asked Buffett a question: "Your investment philosophy is very simple,why doesn't everyone just copy what you do?" Buffett replied: "Because no one wants to get rich slowly."

Almost everyone who enters the market for the first time has fantasized about making quick profits,investing 200,000 and getting back 1 million a few years later.Especially when seeing the rapid increase in the returns of other people's financial products,while their own products are lukewarm,many investors choose to "chase the rise," but the results are often not good.

On the contrary,under the magic of compound interest,a steady and slow strategy often outperforms the ups and downs of swing operations.In the matter of investment,long-term stable returns are much better than short-term performance explosions.The truly great investors in history are mostly marathon runners.

02

"Herd effect" warns us to be alert to chasing rises and killing falls

Many people have heard the term "herd effect," which is simply a kind of herd mentality.A flock of sheep is a very disordered group,usually running around blindly,but once a leading sheep moves,the other sheep will also follow without thinking,regardless of the possibility of wolves ahead or better grass not far away.

Therefore,the "herd effect" refers to the fact that people are easily blindly obedient,and blind obedience often leads to scams or failures.For example,when watching live shopping,when you see many people placing orders and the goods on the shelf are about to be sold out,you are easily influenced by the mentality of "not buying is a loss," and you end up buying it,only to find out later that you didn't need it.

In investment,the "herd effect" is the main cause of "chasing rises and killing falls." Buffett has refused to work on Wall Street for many years because there is too much news there.We are easily troubled by various noises that are "immediate,surrounding,visible,and current," leading to the tragedy of "cutting meat on the floor and building positions at the top" to be repeated again and again.

The way to get rid of the "herd effect" in ordinary investment is to stick to your own investment strategy and ignore the interference of external voices,which is the way to avoid becoming a "sheep."The "Turkey Trap" Illustrates the Importance of Stop Losses

The story of the "Turkey Trap" may be unfamiliar to many: Once upon a time,a person set up a trap to catch turkeys,scattering corn around and inside a large box,with the intention of pulling a rope to close the door once the turkeys entered.

One day,12 turkeys entered the box,but before he could pull the rope,one slipped out.He thought,"I'll close the door when there are 12 turkeys inside." While waiting for the twelfth turkey,two more escaped.He then thought,"I'll pull the rope when there are 11 turkeys inside." However,during his wait,three more slipped away.In the end,not a single turkey remained in the box.

Stop losses are a timeless topic of discussion in the investment community.When you ask,"When should I sell a financial product?" some say to sell when you make a profit,others say to sell when you incur a loss,but many people lack a standard because most people invest based on their feelings.

There are two reasons for needing to set stop losses: First,subjective decision-making errors.Every investor entering the stock market must acknowledge that they may make mistakes at any time,as the only constant in the market is change.When encountering a decision-making error,it becomes necessary to cut losses.

For example,if you've bought a financial product that has been declining for three years while all other products in the market are rising,it's time to consider whether you've chosen the wrong product.Second,objective changes in circumstances.When there are unexpected changes in the market or industry fundamentals,it's also time to consider whether you should cut your losses in a timely manner.

In summary,all stop losses must be set before entering the market,such as "The maximum loss I can bear is 30%." When the loss exceeds this threshold,it is necessary to follow discipline and execute the stop loss operation.

Three short stories have taught us the importance of sticking to long-term investments,not blindly chasing rising and falling markets,and cutting losses according to a plan.In fact,by adhering to these simple investment principles,managing finances can be made simple.