Understanding Time, Temperament and Talent

It is a lot of fun being a DIY investor. Just be aware that it takes also a lot of time, talent and temperament. When I heard first about this TTT, all elements fell in place. By understanding these Ts, I am able to understand my investing approach.

Time

Being an investor takes time. For some people it takes 1 hour per year, for other people it is more than a full time job. It is up to you to define where you want to be on this axis.

Why does it takes time?

You need to research what you plan to do. Define your asset allocation, define your risk tolerance, study these subjects, see what you want to invest in. Reanalyse every now and then.

You need the time execute the plan. The execution of the plan can be highly automated if you wish to do so, or it can stay very manual where you execute yourself each step in the process.

Temperament

IMG_8996This looks at how disciplined you are with your investments and how you deal with paper losses. Can you stick to the plan you defined, no matter what? Or will you abandon the plan and sell all with the first paper loss you make? Do you rebalance when needed?

Each investment styles comes with its own set of actions you need to take. All investment styles will at a certain moment be challenged by a paper loss.

Talent

It comes down to have the right talent to invest. There are a lot to things to know and a lot of skills to master. Some ways of investing require almost no talent, other styles require you to master multiple skills at the same time.

Understanding where you are or want to be in this T defines what style is suitable for you.

Investment style analysis

This is how I look at the different investment styles that I practice: save, index investing and trading options.

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Let me know how you think about this. The question that I have: How would DGI fit into this, especially compared to option investing.

Do your research

For each investment style, you can find with almost no effort a list of bloggers that practices a specific style. Some even combine different styles. By reading from them, you get a better understanding of what it takes. 

Personally, I apply a mixed – or hybrid – investing style where I combine index, options and plan to add DGI in the future.

What is your style? How do you rate your individual investment styles on Time, Temperament and Talent?

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25 thoughts on “Understanding Time, Temperament and Talent

  1. I would add one more T – taxation. Nothing worse than making money and having to give it to the tax man. Arranging your investment accounts to save tax is really important. Canadian dividends are 100% taxable in my retirement account when I take funds out. The dividend tax credit would allow me to make $40,000 tax free if the dividends are held outside of my retirement account.

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    1. Taxation is a nice T to add!
      From a Belgian point of view, this is implemented with not having dividends, or as few as possible. Next to that, we have tax sheltered saving. All off these products pay out at the pension age.
      Thx for adding this thought

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  2. This is an interesting mapping exercise. I like how you graphed the three factors. I would put index investing (what we do almost exclusively) purely in the temperament category. We devote zero time to thinking about it, and we have no talent for any choosing whatsoever — and it suits our temperament perfectly! 🙂

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    1. Looks like you are then in the sweet spot of investing. 🙂 hooray.
      The reason that it has some thinking for me is the initial upfront thinking: what asset allocation, what rebalance frequency.
      On a side note, how was Coachella. I heard a Belgian band was there. They were on the radio just this morning. did you go see 2ManyDJs?

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  3. That is a pretty cool graph you got there outlining the 3 factors. It makes total sense. Pretty. Yah taxation would definitely be one, especially if you live in Canada. Good post.

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  4. Hey ATL, I think being a DGI investor needs a lot of patience, more talent than index investing (to do it well) and it’s best take take temperament out of the equation altogether. There are pros and cons to everything. Index investing is best if you can just put money in and never look at how your investment is doing.

    Tristan

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    1. thx for the feedback.
      patience is a good point to add. Or could be added to time: the time to think the system through and then the time to see the results?

      I tend to agree that DGI needs more talent to analyze companies in detail

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  5. Currently, I mostly do index investing. It is better for someone like me to do this kind of investing to spread out the risks. Before when I had time, I would invest in individuals stocks and research a lot. But with a kid, family, and work, the only thing I can do right now is index investing. I like how to depict the three Ts in the graph.

    Once I get a handle of my time, I would definitely try my hands on options.

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  6. Good post, but i think even if someone has no talent it is possible to learn all the skills of investing.

    I like an investing style that is stressless, but at the end of the day i like it if there is a good return. For me its the combination of DGI and trading options.

    Best regards

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  7. Hey ATL,
    This is a very interesting way to compare investment style. However, I don’t think index investing is a matter of talent. Technically, you can take 4-5 ETFs proving a strong asset allocation and rebalance them each 6 months or each year and you are done. Therefore, lots of temperament (it’s hard to not do anything for 6 months or a year and simply rebalance your portfolio), not much time (technically, a few hours per year is enough to look at your index and make your trade to stick to your asset allocation) and not much talent (I’m pretty sure my 10 year old can understand the importance of having US, bonds, international stocks in his portfolio. You can actually just have 3 ETF for 33% each and you will have a pretty good portfolio).
    As for DGI, it requires definitely more time and more talent than index investing. I would say it requires less of all T’s comparing to option trading though. For me, the most important T is temperament. If you can’t stick to your investment strategy (no matter what is it), you will not have success on the stock market.

    Cheers,
    Mike

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  8. I feel like temperament and patience are everything, and (while it doesn’t start with a “t”), luck and fortuitous timing also have something to do with investing success, in general.

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