Why Graham Stephan Says ‘Knowing What to Ignore’ Is a Big Part of Investing

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It’s important to ignore the noise and buzz, and stick to what you know. 

Whether you’re new to having money in a brokerage account or you’ve had one open for many years now, you might rely on outside advice to keep developing and informing your investment strategy. This isn’t necessarily a bad thing to do. In fact, it’s a good thing to learn from those who may have more expertise or knowledge than you do when it comes to investing.

The problem, though, is that there’s a lot of bad investment advice out there. And in an age of social media, it’s become easier than ever to access investment advice — even from people who shouldn’t be giving it.

That’s why you’ll need to be careful when it comes to building your portfolio. And it also pays to follow this tip from investing expert Graham Stephan.

Establish your own filter

In a recent tweet, Stephan shared the approach that Charlie Munger, a well-known billionaire investor, takes to buying assets. According to Stephan, Munger classifies all of his investing ideas into three boxes:

InOutToo hard

Stephan then went on to say, “Knowing which ideas to ignore is as important as knowing which ones to invest in.”

Now, this doesn’t necessarily mean you should pass up investment opportunities because researching them further is difficult and time-consuming. But one thing you shouldn’t do is succumb to the pressure to put your hard-earned money into investment advice that doesn’t make sense to you, or doesn’t sit right with you.

In fact, one essential rule all investors should stick to is to never invest in an asset you don’t understand. Let’s say you normally buy stocks, but there’s a specific company whose finances you just can’t wrap your head around. That’s a company worth passing on, even though it could end up making you wealthier.

Similarly, you may have been told repeatedly over the past few years that investing in cryptocurrency is a great way to get rich. But maybe you’re just not comfortable with that given how volatile the crypto market tends to be (it can swing even more wildly than the stock market, which is volatile enough in its own right). Or maybe you really just don’t understand how the crypto market works and how to make money there. In that case, passing on crypto is a better bet.

Carve out your own path

You can seek out and take advice on how to build a portfolio, and if you’re sticking to reputable sources, that can be a good thing. But you also shouldn’t hesitate to carve out your own path as an investor. Establish a strategy that works for you and your risk tolerance level, and ignore advice that just doesn’t speak to you.

A lot of people worry that by passing on trendy investments, they’re giving up a big opportunity to make money. In reality, a lot of those so-called “hot” investments fizzle out and result in losses. So ignoring that sort of advice and steering clear of peer pressure could set you on the path to success.

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