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The “Pokemon Go” Method Of Investing

01 Sep 2016 
SOURCE: Cheerfulegg.com

C'mon, admit it already: You're playing Pokemon Go.

 

If you're like me, Pokemon Go dictated how you spent your National Day: Maybe you ran from Pokestop to Pokestop down Orchard Road, or hung out at Blk 401 Hougang Ave 10 hoping to score a Gyarados.

 

Hey, there's no shame in that. Pokemon Go is fun. There's something oddly satisfying about seeing your Pokeball wriggle about for a few uncertain seconds, followed by a burst of stars and a "Gotcha!" emblazoned across your screen.

 

You know what isn't fun though? Learning investing.

 

How many of us have said to ourselves, "Okay, I need to start figuring out this investing thing".

 

So we start reading articles online, come across a flurry of dry technical terms, and feel our eyelids getting heavier. Then we give up, reach for our phones, and start lobbing Pokeballs at Psyduck. (Oooh look, someone set up a Lure!)

 

Let's face it: Learning investing is boring. There's no way we can make it as fun as Pokemon Go.

 

Or can we?

 

Let's see how we can use our Pokemon Go skills to actually start investing. Don't worry, we're gonna make this even easier than catching a 10 CP Caterpie. Are you ready?

 

Let's do this!

 

Step 1: Grow Your Trainer Level Over Time

When you first started playing Pokemon Go, you didn't have an XP to your name. You were just a lowly Level 1 trainer, staring wistfully at those Level 30 showoffs who're always hanging out at the gyms around you.

 

But as you caught more Pokemon and accumulated XP, your trainer level started to grow. As you advanced to higher levels, you unlocked awesome treasures like Lures, Razz Berries and Great Balls.

 

Similarly, a lot of young people feel intimidated by investing at the very start. They'll say things like:

  • "I'm not from a rich family"
  • "I just started work, so I'm not earning a lot"
  • "I just have so little in my bank!"

 

Well, you know what? You don't actually need that much money to start investing! There's a saying: You don't invest because you're rich. You get rich because you invest.

 

Instead of wishing that you had $20K in capital, start investing in small amounts of money over time.

 

If you can't do $1,000 a month, can you do $500? What about $100? Start with a sum that you're comfortable with, and slowly grow it from there.

 

Once you start earning more in the future, you can shovel more "XP" (aka money) into your investments every month to accelerate your portfolio. As this table shows, increasing your investments by just a few hundred dollars more per month could make a huge difference:

The pokemon go method of investing 3.png 

*Assumes a 7% interest rate, compounded monthly at the end of each month

 

In short, investing isn't something you do overnight – It's a process that spans several decades. But if you're a young person, you've got time on your side.

 

Don't worry about getting it perfect at the very beginning. Start early with a small amount, and grow it slowly from there. To help you out, I also wrote a guide on how you can start in as quickly as 3 days.

 

Step 2: Diversify Across Many Pokemon Types

One of my friends hates it whenever she encounters a Rattata or Pidgey. She only wants the rarer, "cute-looking" Pokemon like Jigglypuff and Eevee.

 

But as we all know, picking and choosing which Pokemon to catch is a mistake. Every Pokemon has their own pros and cons. Even those annoyingly common Pidgies can help you to earn Candies to accelerate your trainer level.

 

Therefore, it's a good strategy to catch ALL the Pokemon types you encounter – because you never know which opponent you'll encounter at the gym.

 

Congratulations – You just learnt the classic investing concept known as "diversification".

 

You see, when it comes to investing, a lot of people like to pick individual stocks. But stocks aren't like Pokemon – you have no way of knowing in advance what a stock's "CP" is. It's like trying pick the best Pokemon from the following choices:

Some people try to guess a stock's CP by looking at intimidating metrics like P/E ratios, dividend ratios, support and resistance, etc. But these metrics are uncertain at best, and harmful at worst. In fact, research has conclusively shown that most stock-pickers – even the professional ones – can't beat the performance of the stock market.

 

Therefore, for most of us, the optimal investing strategy is simple:

 

Don't pick stocks. Own the entire market.

 

Buying the entire market is like owning ALL the stocks in the Investment Pokedex. Since you can't predict which will perform well, you're better off diversifying across all of them.

 

Think about it:

  • Most professional investors can't beat the market
  • Therefore, if you own the market…
  • …You beat most professional investors by default!

 

In fact, a 2012 study showed that if you simply bought the market and did nothing but play Pokemon Go all day, you'd have outperformed 80% of professional fund managers over a 20-year period.

 

So is there an investment that lets you buy the entire Singapore Investment "Pokedex"? Why, yes there is.

 

In Singapore's context, it's called the Straits Times Index ETF, or STI ETF for short.

 

Buying the STI ETF lets you automatically invest in 30 of Singapore's blue chip stocks, including institutions like SingTel, OCBC, and CapitaLand. Since the STI makes up close to 80% of Singapore's stock market, it's almost as good as owning the entire Pokedex market.

 

You can read up more about the STI ETF in BigFatPurse's comprehensive guide here.

 

Okay, we now know that we should 1) invest slowly over time and 2) own the entire market. What's next?

 

Step 3: Automate Your Game Play

Psst – this is quite an underhanded tactic for Pokemon Go, but you're gonna love it when it comes to investing.

 

When Pokemon Go first launched in Singapore, I was perplexed by how the gyms were all occupied by powerful Pokemon of around 2,000 CP, and Trainers at level 30 or more. How did these Trainers get to those crazy levels within 2 days?

 

The answer: Bots.

 

According to this article, you can now buy Pokemon Go bots which spoof their GPS locations and automate their actions to "essentially play the game for you while you sit in the comfort of your own home."

 

Yeah, I know. Bots are lame, and they kinda take the fun out of the game.

 

It might be silly to automate your Pokemon Go game, but it makes a LOT of sense to automate your investments.

 

You see, investing is like exercise: The more consistent you are, the better your results. A lot of beginner investors dabble with stocks "once in awhile", which isn't enough to build a significantly large portfolio.

 

On the other hand, an investment "bot" helps you to be consistent. Also known as a Monthly Investment Plan, it helps you to automatically invest a fixed amount of money every month into the STI ETF. Here's how it works:

  1. At the start, you'll configure how much you want to invest every month into the STI ETF
  2. On a specific date each month, it'll withdraw that amount from your bank account and invest it into the STI ETF

 

I LOVE this because it's a "set it and forget it" way of investing. But if you ever need the funds for emergencies, you can also pause or stop it at any time.

 

No need to deal with brokerage accounts, Excel tracking sheets, or annoying financial planners. Because let's be honest: We have a thousand other things we'd rather be doing. Like researching which Pokemon we'd like to evolve our Eevees into.

 

Right now, there are 4 of such Monthly Investment Plans available in Singapore, offered by different banks and brokerages. I talk more about them in my ebook.

 

You're Better Off Starting Early

I have a friend who doesn't play Pokemon Go (I know, right?). He's only gonna start playing next month when he gets a new phone.

 

The thing is, by the time he starts, all his friends would've reached Level 30 or more. When it comes to Pokemon Go and investing, the best thing you can do is to start early.

 

Too many young people put off investing because they're busy with their careers, their weddings, their new house, etc. I get it. Life happens, and sometimes it's hard to find the time to figure out what to do with your money.

 

But as we showed in this post, investing doesn't have to be complicated or time-consuming:

  • Invest in small amounts over time
  • Don't pick stocks – own the entire market
  • Automate the process

 

That's it! Personally, I've found that this is the BEST way for beginners to get started at investing.

 

Start your investment journey early – you won't regret it. You can then check it off your list, move on, and go back to playing Pokemon Go.

 

Now if you'll excuse me, someone just started a Lure at the Pokestop downstairs. I've got a Charmander to catch.

Lionel Yeo is a ramen-slurper, bathroom dancer and financial hacker behind cheerfulegg.com, a personal finance blog for young executives. His material has been featured on the Sunday Times, Yahoo!, KISS 92 and more. He also secretly dances in his room.

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