The title is a little odd as smart people usually get around. But why is it that smart people usually lose money while investing? Instead of breaking it down like a boring white paper let me tell you a story of a man named Ravindra.
Ravindra is a middle-aged man, possibly in his 40s, who has a fabulous family, a great career as an IT consultant, a huge income and mind-numbing intellect and skills. It is his skills and intellect that has put him in a top position in the field. He is dedicated, meticulous, hardworking, visionary and an avid learner which makes him an expert in his field. Suffice to say his presence on earth is widely appreciated in the industry. Since he is a visionary, investing to create a nest egg for retirement, education, healthcare, and emergency corpus is not missed by him. He begins his investment journey like a lone wolf i.e. without any prior guidance. He thinks that since he is smart enough to rule his field, he can rule investing too. Turns out the world doesn’t work that way! To win at multiple fields one needs to have in-depth knowledge of all those fields. Knowing one doesn’t make you an expert in the others.
You can guess what I am implying, Ravindra’s investments are a mess! He has no discipline, does not follow a process or strategy, changes investment plans like they are clothes, runs for hot tips, has no asset allocation, no fixed goals and has zero patience. All these attributes translate into one thing- LOSSES! He loses frequently given his nil hedge against inflation and tax inefficiency. Had he taken prior guidance from a qualified expert in the investment field he would have been swimming in cash!
There are many such ‘Ravindras’ out there, who due to their smartness lose money. Unless they become amateur in this field, they can never learn. When I say learn, I mean hiring an advisor who guides you through market cycles, following a strategy etc.
Investing has few golden rules that you have to follow. An investor has to know about his goals, his risk appetite, follow a process, have a dynamic asset allocation, exercise discipline, have patience and give stocks time to compound. Since one cannot begin to know everything, the best is to take the help of an expert who knows this like the back of his hands.
Since I made you read the entire piece, what you can do is learn from the story instead of losing actual money. I mean hypothetical loss of hard-earned money is scary enough! So go ahead, be an amateur and learn.