Explaining Investing In Ways That Make Sense

By Markets Fool.com

Investing can be intimidating. It's the intersection of big numbers, emotions, salespeople, and the future.

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But it doesn't have to be. It's not a complicated subject. People understand investing better when you compare it to other things they're familiar with.

Here are a few.

Financial planning is like designing a bridge.You don't calculate exactly how much weight the bridge will be able to hold; you build it with so much room for error that there's almost no chance it will ever be overloaded.

Asset management is like politics.Just as much, if not more, effort is spent fundraising than for actually working for clients/constituents.

Compound interest is like planting oak trees. One day's progress shows nothing, a few years' progress shows a little, ten years shows something big, and 50 years creates something absolutely magnificent.

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Investing is like math.People try to woo you with complexity, but the simple elegant stuff is what's really powerful.

Learning to invest is like getting drunk.Confidence increases faster than ability until you just give up and start over, vowing to learn from your mistakes.

Markets are like biology.Things are always changing, but change happens slow enough to convince people that things have always been this way.

Derivatives are like Gucci handbags. They have some practical purpose, but mostly they're an attempt to impress other people at the benefit of sellers and middlemen.

Day trading stocks is like smoking.It's amazing that we let people do it on their own, but require manicurists to get a license.

Investing in hedge funds is like opening a restaurant.The huge majority will fail, but some will be successful enough to entice hordes of people to try their luck.

Investing is like being a pilot.As a pilot once said, his job is "hours and hours of boredom punctuated by brief moments of terror."

Investing is like sports. People argue in a my-team-versus-yours way, but in reality we're all chiefly at the mercy of chance.

Investing is like history. So much stuff has happened that you can always find a story to back up any crazy idea you can think of, and what's right can be far different from what's both rightandin context.

Personal finance is like medical treatments. There is no "right" answer. Some people will rationally forgo treatment/investments that other patients insist on, because everyone's goals, priorities, and tolerance for risk are different.

Investing is like a car wash. You can probably do it yourself just fine, but paying someone feels better and, importantly, they'll clean the undercarriage, which is the most important spot since it's prone to rusting.

The economy is like the weather. We can measure things really well and have a good idea of where things are going most of the time, but sometimes things move in ways that break the forecasting models and smash all precedents, which is the only time when forecasting really matters.

Investing is like poker. There is a lot of skill involved, but people still underestimate the power of luck.

Investing is like the flu vaccine. We know how to solve problems, but since the virus is always evolving and mutating, we have to tweak our thinking at the edges every year to adapt to today's world.

Deep bear markets and economic depressions are like world wars. They have occurred so infrequently that we can't study them in a way that will indicate what to expect in the future. The sample size is just too small.

Building wealth is like a golfcourse where for every 100 yards a ball moves down the fairway, the hole moves 101 yards further away.

Financial analysis is like wine ratings.There are some good rankings, but in general, so many people put their faith in so much subjective nonsense that it's hard to fathom.

Share buybacks are like frequent-flyer miles.The can be hugely valuable if used properly, but in many cases it's just a big exciting number on a statement whose value is never redeemed or achieved.

Picking stocks is like baseball.Not a single person hits every pitch, and you can become the greatest of all time hitting a fraction of the balls that come your way and striking out regularly.

Investing is like running a marathon.As the saying goes, "it's a marathon, not a sprint." But most people don't have the endurance to run a marathonbecausethey try to sprint.

Wall Street is like Las Vegas.But with Hermes ties and no free drinks.

For more:

Performance vs. outcomes

Why does pessimism sound so smart?

Things I'm pretty sure about

Hard truths for investors to wrap their heads around

How the investing industry could change

The article Explaining Investing In Ways That Make Sense originally appeared on Fool.com.

Contact Morgan Housel at mhousel@fool.com. The Motley Fool has a disclosure policy.