Part 1: Empty your Cup or Why the heck most people are terrible at Investing? And how to put an end to it
1.4 Then how do you know you are investing successfully?
This is perhaps the most important question. And you know ‘earning 20-25% returns’ is not the answer. To answer this you must understand clearly, the difference between being efficient and being effective. Do you?
Stephen Covey author of Seven Habits of Highly Effective People helps get the point across very clearly through the famous wall-ladder analogy. He says suppose you want climb a wall and you need a ladder to do it. Then efficiency is how long you take to climb it. The shorter the time, the more efficient you are. But placing the ladder against the correct wall, the wall you need to climb for whatever purpose, is what makes you effective. Placing the ladder on the right wall and using your enthusiasm and skill to climb it faster without falling makes your effective and efficient. If it placed on the wrong wall, you are not effective and efficiency does not matter.
Returns is measure of efficiency; its money earned divided by money invested in a given period of time. Earning higher returns is being more efficient with the money that you have invested that earns this returns. But if you are unable to invest sufficiently through this ‘higher-returns-way-of- investing’, or you are unable to stay invested for long enough then you will not earn enough money and grow your money to meet your goals. Then this way of investing is ineffective for you. It’s like climbing fast on a short ladder…. you don’t reach your goals no matter how fast you climb the ladder.
Investing effectively means you manage your investing in a way that you are able to provide for your goals. It’s like climbing a very tall ladder that is placed against the wall that has your goals right at the...........Read More
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