The best investment you can make is an investment in yourself. ~ Warren Buffett
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Short view – It could get lonely and frustrating, plus dangerous for your sanity and financial well-being.
Long view – First, a clarification. I am not a full-time investor i.e., I and my family are not dependent for our living on the stock market. I earn my living by teaching people how to invest sensibly in stocks and how not to blow it up as an investor, and by selling books. And I invest a large portion of my savings in stocks. But I won’t have sleepless nights if the stock market were to tank tomorrow and remain down for the next year or two, because that is not what earns me my oats and sprouts (I don’t eat “bread and butter” you see).
Anyways, the reason I am writing this post is because this is that phase in the market where I see a few questions from readers about how they could quit their jobs to become full-time investors in the stock market.
In most of my replies, I have asked people to avoid quitting their jobs to become full-time investors, and here are five reasons I have often mentioned to support my reasoning. In case you have had this question but were afraid to ask, I hope what follows below helps you take a decision.
Please do not consider my arguments as discouragement if you really want to become a full-time investor (though investing is not a full-time activity anyways). I am just sharing what I have learned and experienced over the years, and you are welcome to ask more questions and share your thoughts or counter-arguments in the Comments section of this post.
5 Reasons You Must Not Quit Your Job to Become a Full-Time Investor
1. You do not have to get rich through investing – With the last few years of reasonably good performance from the overall market, and with a lot of people flouting their multi-baggers on social media, it isn’t surprising that many people who want to quit their jobs to become full-time investors because they think they have a “knack for finding potential multi-baggers.”
But such thoughts are often masked by survivorship bias, which is a logical error of concentrating only on people or things that “survived” some process and inadvertently overlooking those that did not. So, taking inspiration from other full-time investors who have made good, quick, money from stocks and ignoring others who followed similar processes but ended up with disasters can lead you to false conclusions about your own potential as a full-time investor.
What is more, like them, you don’t need to consider investing as a way to make you rich…but a way to keep you rich i.e., help you grow your purchasing power.
Look at your work – job / profession / business – to make you rich and thus focus more energy and focus there than on the stock market. That is another reason most of us should consider owning only high-quality businesses where we don’t have to spend a lot of time answering a lot of questions.
2. Investing is not your passion – Yes, I know that the stock market gets you excited and that you think you have a passion for stocks. But if you could look deep within, you may realize that what gets you excited isn’t the idea of “investing in stocks,” but the idea of “investing in stocks that will rise and make you rich quick.” Or why else do you wait for Monday with great excitement if not for the kick that logging into your online portfolio tracker gives you? Yes, yes, I have been through that and thus could relate to it very well (now I don’t maintain an online portfolio tracker).
For a lot of people in the stock market, “I have a passion for equities” is often a result – and not a cause – of “I have made good money from stocks in the last few months/years.” Most of us fail to distinguish between luck and skill in stock investing – both for ourselves and for people who boast about their great picks on social media. And passion for equities often dies with a sliding stock market.
So please beware – know clearly what you are passionate about, and it may not have to be the stock market.
3. You have not experienced a deep/long bear market – When I say “experienced”, it’s when you had 80%+ of your savings invested in stocks that went down 50%+. As I can assess from the emails people send me asking whether they should quit their jobs to become full-time investors, most of them have been investing/speculating in stocks for less than 5-7 years. This means, they have not experienced a long/deep bear market in equities with a large part of their money invested…which means their guts haven’t been tested for staying sane in a rough market.
If this is true for you too, please don’t get down to full-time investing before you gain this experience. In fact, if you seriously want to get down to becoming a full-time investor, first learn how to do it sensibly, test your skills (by investing part of your savings in stocks) and guts for owning stocks for a minimum of five years and check how you fared in this period. Only then make your decision.
4. You may not have a solid support system – It’s easier for you to convince your family as you start full-time investing without another regular source of income. You have the savings to survive for a couple of years (that’s very important), your spouse believes in your ability to do well, and your kids would love to see you spend some more time with them.
But then, this is easier compared to what? Well, it’s easier compared to keeping yourself and your family convinced for more than 1-2 years in case your investments do not earn well enough to help you maintain your living standards. Or if you do not have an adequate amount of capital invested that brings you sufficient income as dividends.
If that happens to be the case, your support system may be at a risk of breaking down, which may ultimately lead you to take bad, hasty investment decisions. It’s could become a vicious cycle then.
So, even if you aim to become a full-time investor, ensure that you have a regular source of income – maybe through a small business or a part-time job or if your spouse is ready to take the lead earner role happily. That would give you time, confidence, and savings to work towards your aim to become a full-time investor.
5. You have not handled loneliness and boredom well in the past – Being on your own can become terribly lonely at times. Plus, if you are an investor and have no new stock idea to work on – maybe the markets become expensive across the board – it could get very boring too. If you have never experienced such emotions of loneliness and boredom in the past, be forewarned, for these can lead you take bad investment decisions just because you don’t have a habit of inaction, or sitting still, when everyone around you is acting. The pressure to “do something” is often so great, that people do the wrong thing when they’d have been better doing nothing.
Of course, you can find investing partners or groups to curb your loneliness, the silence you experience from time to time of being a full-time solo investor can be deafening.
Still Wish to Quit Your Job?
Despite my discouragement, if you still wish to quit your job to become full-time investor, or pursue some other passion, here is a checklist that may help you. These are some lessons from my experience in quitting my job, so they may guide you in some way in case you are sailing in the same boat as I was more than a decade back –
- You don’t need to quit your job if you can work on your passion for investing or something else alongside. In fact, quitting your job must be the last resort, or when you find the burden unbearable and abusive.
- Quitting a job and living a fulfilling life isn’t as easy as those who have done it would make out to be. Things get scary at times.
- Quitting you job will affect others in your life, so it’s critical that you have an honest conversation with your family first and get their buy into the decision.
- Learn an important and sellable skill before you quit your job to start on your own. You must have an alternate source of income to sustain your family, just in case the stock market doesn’t appreciate your decision and doesn’t reward you for the risk you took
- Quitting a job to live as an investor can be a path to hell. Don’t expect investing to make you rich, but to keep you rich. It’s the earning from your work, and what you do with it, that will make you rich.
- Practice minimalism and lean living at least a year or two before you plan to quit your job. Instant compromises are heart breaking!
- Save money to use as initial capital for your business, and then keep your expenses low. Don’t borrow money for your business till the time you aren’t generating cash. As an investor, you hate cash guzzling businesses, right?
- Don’t believe people who tell you – “How I quit my job, doubled my pay and cut my hours in half”…or something like this. They will not help you if you reach a point of no return.
You have my best wishes if you still want to quit your job to become a full-time investor…or if you want to quit your job to pursue something else.
I will be happy to help, in case you have any questions that I can try and answer.
And, by the way, to answer the question of how one can prepare to become a full-time investor, here is a checklist I have drawn for people who want to ignore my warnings and get into full time investing. In this checklist, especially note the consequences of getting it wrong.
Checklists save lives, in aviation and medicine, and also in tasks that involve a lot of biases and uncertainties…like investing.
I hope this checklist helps save some (financial) lives too. 🙂