Overview – Learning to Become a Sustainable Investor
After a grueling campaign, Formula One driver Nico Rosberg successfully clinched the World Driver’s Championship in 2016, beating his teammate Lewis Hamilton by just 5 points. However, Rosberg shocked the racing world when, 5 days after claiming the title, he announced his retirement from the sport. Why did he do that?
Rosberg has previously discussed the extent of his campaign, detailing the sacrifices, effort, and mental fortitude he needed to maintain throughout the season. In his retirement announcement, he remarked that it took everything he had to claim the championship but felt that such an endeavour could not be repeated, at least not without any lasting damage to his personal and family life. In other words, he knew that the approach he took was clearly unsustainable.
Many investors have ambitions of investing for many years, or even decades, to come. After all, it takes a lot of time, energy, hard work, and patience to see your portfolio grow, and many investors are more than willing to stay for the long term to see their efforts bear fruit and to see just how far they can go.
However, you can’t expect to stay for long if what you’re currently doing is slowly eating away at you, whether it’s mentally, financially, or some other aspect. If you want to succeed in the long term, then you need to start preparing for that today.
Put another way, if you want to keep investing far into the future, then you need to ensure that what you are doing as an investor is sustainable.
What Is a Sustainable Investor, Anyways?
When you hear the word “sustainable”, what first comes to mind? Many people are quick to associate it with the environment and green initiatives, and while that association is certainly understandable, the idea behind sustainability is much more fundamental.
The Merriam-Webster dictionary gives three definitions for “sustainable”:
1 : able to be used without being completely used up or destroyed
2 : involving methods that do not completely use up or destroy natural resources
3 : able to last or continue for a long time
Notice how all three definitions share the common theme of longevity, but the definitions we’ll be focusing on will be the first and third ones.
With these in mind, a sustainable investor can therefore be described as “someone who is able to continue investing for a long time because they know how to do so without completely exhausting their resources (money, mental stamina, patience, emotional control, etc.)”
While many investors want to stay for the long haul, they don’t stop and seriously ask themselves if they’ll be able to do so. Sure, what they’re currently doing may be alright for now, but that’s not to say that this will be the case, 5, 10, or 20+ years down the road.
Why Should Investors Care About Sustainability in the First Place?
Imagine you’re told by your family doctor that, unless you start changing your unhealthy lifestyle, you’re going to run into some very serious health issues down the road.
You’re currently young, so you can afford to take some liberties with your current lifestyle such as eating sugary foods, only exercising once in a while, and consistently getting less than 8 hours of sleep, but you don’t need to be an experienced doctor to know that as your body ages, you can’t keep living in such a manner forever.
If you don’t make changes to your lifestyle choices today, then over time you’ll find that your body will slowly deteriorate and your health will gradually decline. By the time it turns into a serious problem, it’s already too late to try and fix your health, at least not without taking any drastic measures.
Early in your investing career, you may be able to get away with certain actions, but the consequences of said actions slowly add up and will eventually catch up to you. Therefore, one of the goals of becoming a sustainable investor is to identify these self-destructive behaviours and gradually turn away from them before they completely deplete an investor’s resources.
It doesn’t matter how many resources an investor currently has at their disposal: they are all finite, and if used recklessly can quickly be depleted faster than an investor can hope to recuperate them.
Not only does a focus on sustainability help investors turn things around before causing lasting damage, but it can also help investors find ways to maintain, or even improve, their performance as they progress in their careers.
Professionals such as engineers, doctors, lawyers, and teachers are unlikely to take the same approach to their work for their entire careers. That is, as these professionals gain a better understanding of their work and as they undergo countless changes in their lives, they’ll constantly tweak how they do things, all while maintaining their desired level of performance.
Investors early in their careers may have an abundance of time, energy, and operate close to the peak of their intellectual prowess, but as they progress in their careers those things will change, yet will still need to maintain adequate performance in order to achieve their goals. Learning to take a sustainable approach to investing may help accomplish that.
Many people are eager to start investing, and many of them hit the ground running when they do. However, investors need to realize that they can’t go full-speed ahead forever, otherwise, they’ll find themselves burning out or depleting all their resources before reaching their destination.
Preparing for the Future by Checking What You’re Doing Today
It’s easy to say “Become a sustainable investor”, but knowing what exactly needs to be done in order to achieve that presents an entirely different challenge. So, what sort of steps do investors need to take to ensure they’ll one day become sustainable?
A relatively easy way to start is to have a very good look at what you’re doing right now and to seriously ask yourself if what you’re doing can be continued well into the future. That being said, what sort of actions should an investor keep an eye on?
Many young investors like to speculate every now and then to add a bit of excitement to their investing lives, and sometimes these speculations lead to surprisingly good returns. While speculations may lead to some above-average returns here and there, chances are the losses sustained will be even steeper and far more common. How long can an investor keep this up before their capital is depleted?
Early in their careers, investors tend to have an abundance of time they can allocate to investing-related activities such as analysis and study. After all, the only major commitments investors may have at this stage in their lives are school and/or work, and they probably don’t have any dependents such as children to worry about. However, as an investor matures and their responsibilities gradually pile up, they will be left with less time to dedicate to investing. So, they’ll need to find new ways to perform investing-related work but now with reduced time.
Perhaps you still succumb to your emotions and, as a result, take part in panic selling and buying, even though you know that losing control of your emotions always results in a bad investment decision. How long can you afford to let your emotions control you until one day your portfolio can no longer recover from your emotional decision-making?
These are the sorts of things you may want to look at to determine if you’re ready to keep investing for many more years to come, or if there are some things that you’ll need to change before they ultimately destroy you.
As you may have suspected, this isn’t an easy process: there are several actions an investor will need to critically look at, and it’s hard to critique oneself objectively, no matter how much we try to convince ourselves that we do.
Working towards making yourself a sustainable investor is a tall task, so naturally, this isn’t something that happens in a single day.
Being a Sustainable Investor Doesn’t Happen Overnight
Just like many other aspects of investing, becoming a sustainable investor is a continuous process. As you constantly assess what you’re doing and how your circumstances change, then you make small, incremental adjustments as you go along.
Although some things you’re currently doing may need to be changed, this doesn’t mean you need to make dramatic, abrupt changes right away.
Back to our example from earlier, if you have lots of time to perform investment analysis and will continue to have this much time in the foreseeable future, then perhaps you can still keep doing so for now.
It’s unlikely that you’ll continue to have this much time for the rest of your investment career, but the changes that will happen in your life and investment career will probably occur over a span of several years, so there’s really no need to do a complete overhaul on such short notice.
Making changes as an investor is never easy, which is why it’s so important to make these changes gradually so that you have the chance to grow accustomed to them.
Because it takes time to gradually evolve into a sustainable investor, the earlier you start making these small, incremental changes, the better. The last thing you want to have happen is to realize that you need to make some very dramatic changes, but not have enough time to smoothly transition to properly adjust to them.
Wrapping Up
If an investor wants to continue investing for many more years to come, then they need to ensure that what they’re doing today can continue to be done in the future, that is, they need to make sure their approach to investing is sustainable.
There are some things that an investor can afford to do while they’re still starting out and have lots of time, but as their careers progress they can’t reasonably expect to keep doing the same, detrimental acts and afford to handle the consequences.
If becoming a sustainable investor is the key to long-term success, then the best time to start preparing is today. It would be wise to take a look at what you’re currently doing right now and to make sure that those actions won’t slowly eat away at your portfolio and resources.
Naturally, this isn’t something that happens instantly; it’s a continuous process that an investor must undergo as they advance in their investing careers. Ultimately, what matters is that an investor takes the necessary steps needed to prepare themselves for the future if they have any intention of keeping at it for the long term.
