3 Investing Transformations

Welcome to post 2 of 3 in this week’s Distilled Dollar Investing Crash Course. On Tuesday, I went into detail about how we first identified the opportunity surrounding financial freedom. An opportunity means nothing without a transformation so today’s post will detail the 3 Investing Transformations (yes, plural) I had to undergo to meet and exceed my money goals.

Much of this post will only make sense if you read the first article, so be sure to read it first by clicking here.

Okay, we all set?

Awesome!

(Be sure to check at the bottom of this post for the 7 case studies I mentioned earlier – they helped us identify the opportunity we spoke about in the first article.)

3 Investing Transformation


What is an investing transformation? Will it help me reach my money goals? Is it some new Michael Bay movie?

3 Investing Transformations 1

The short answer is, “No”. There are no crazy amount of stunts involved like the last Transformers movie.

There are only 3 Investing Transformations available to all of us.

In clinical psychology there is a basic understanding of how we develop confidence in a new skill.

It involves 3 transformations as we move from one learning phase to the next – from a complete nobody to an investing master. Literally. The same path is applicable in any field but since I’m gung-ho on money, I’m focusing on investing.

In the first transition we become aware of the fact that, as it turns out, we don’t actually know anything.

For me, this was when I felt absolutely frustrated and overwhelmed with money and investing. I had just taken my first business class on Finance and, I’ll admit, the greek letters and calculus were confusing (more on this later).

Surely, it couldn’t be that complex and this is where people experience their first transformation.

1st Investing Transformation: We wake up from our Money Matrix, realize we have much to learn, and we start taking action to regain control in our lives.

3 Investing Transformations 2

The psychological term for the first stage before the transformation is called Unconscious Incompetence and in plain english it means that we don’t know what we don’t know. For example, we don’t know if REITs make sense in our investment portfolio because we don’t know what REITs are.

Borrowing from the works of Nassim Taleb, the author of a few incredible books on investing and business, he would use his popularized term and say there are many “unknown unknowns,” in this phase.

Lucky for you, since you’re reading this post, you already made the first transformation into phase two – where you’re starting to look at and address your money situation.

Phase Two: Rookie Year

Psychologist now call this phase Conscious Incompetence. In this phase we realize and accept that we are idiots, and yes, I was one of these big idiots back in 2009.

I was attending business school and knew I wanted to learn more about finance, money, but what particularly captivated my attention was  investing. I found the topic fascinating, especially how it intertwined statistics, economics, finance and behavioral studies.

With countless books out there on investing, how was I to know where to start?

More importantly, what was the right move to make for my future investments?

Should I invest in real estate or the stock market? Should I buy individual stocks or mutual funds or index funds? What are index funds?

As I began to peel away layer after layer of ignorance, my confidence towards investing rapidly rose.

2nd Investing Transformation:

We commit to The Open Road, where we learn possibilities on how to invest, when to invest, where to invest, what to invest in, and etc.

3 Investing Transformations 5

The Open Road calls to each of us differently.

Commitment goes beyond Phase 1. We’re merely getting started. Sadly, many who start never finish.

For me, this was easily my favorite time learning about money. There is so much information to be absorbed and I was fortunate enough to have the time to dig through over a hundred books.

The result of this transformation was clarity in my investing approach, which left me more time to handle other money and non-money matters.

It is a cruel reality but one that we all face: having our investments in disarray or even worse, having no investment approach, leaves us with less opportunities in our future.

Money is a tool and a resource that can be used to benefit ourselves and others. I still recall that feeling I had when I helped my fiancee (girlfriend at the time) cross each hurdle. Witnessing the emotional strain lift is priceless and worth the countless days and nights spent reading books on compound interest, investment vehicles, and tax strategies.

Conscious Competence is the activity we are seeking here. This is where we need to actively pursue our results and we have to “hack” our behavior since it is not already automatic.

The next transformation takes us from Conscious Competence to Unconscious Competence.

3rd Investing Transformation:

The Narrow Road and our Capacity to Distill

3 Investing Transformations 4

The capacity to Distill is a two parter. In the first sense, we want to increase our knowledge and expertise with different types of investing by actively learning more. In conjunction with taking on more information, we also further develop the ability to sift through the junk to find the gold.

Our filters become automatic and we can determine the right mode of action (nearly) instantly.

These two powerful forces act as a primer for the future.

The Narrow Road is a constant process of identifying what helps our journey and eliminating the obstacles that take us off path or slow us down.

The 3rd investing transformation ends with the final phase psychologist describe as unconscious competence, or as I prefer to call it: Mastery.

Phase Four: Mastery

3 Investing Transformations

I’ve said this before, but this phase is best summarized in the words of the great jazz icon, Charlie Parker, who said, “Master the instrument, master the music, then forget all that shit and play.”

Having now just described each of the transformations, I can’t help but relive some of the pain and turmoil I experienced through my journey. I’m also reminded of the countless “aha” moments and celebrations of small and large victories.

Luckily, we all learn better from those who have been there before. That’s right, I didn’t forget about the 7 case studies mentioned in Tuesday’s post on discovering the opportunity to gain financial freedom through smart investing. Below are the 7 case studies where you’ll find value in seeing how others accomplished what I’m laying out here today.

7 Case Studies


Here are 7 different people from various paths of life and income levels who all reached $1,000,000 net worth by an extremely early point in life. (7 case studies here) Once we KNOW it is possible, regardless of our income, then we can have faith that our actions will produce results.

In case you missed it, the paragraph above is the main takeaway of this article – and it isn’t even highlighted! If you’re able to pick this out, then you’re well on your way.

Part of each transformation is gaining a deeper level understanding of financial terms and investment speak.

One of the largest mistakes I see people make today involves one of the more dangerous investment terms out there: fiduciary.

Thursday’s post will discuss why this one word causes a lot of trusting people to be misled by their “fiduciary”. I’ll also cover two simple questions you can use to remove this problem in your investing life.

What would each of these transformation do for your financial well-being? What benefits would you see for yourself, your family, your friends, charities, hobbies, and more?

-Matt

P.S. Be sure to check out back Sunday, June 18th, when I’ll dive into why fiduciary is a dangerous and sometimes misleading word along with the two questions you can ask to avoid leaving your money on the table.

4 comments… add one
  • Mrs. Adventure Rich Jun 15, 2017, 5:23 am

    Transformation #2 made me chuckle. I have a distinct memory of my first year out of college/in my job when I wanted to learn more about investing. I knew investing was “smart” and the I was already participating in my 401K, but I also knew there was so much more out there to learn. My first Google search was something along the lines of “How to Invest?” followed by “What are Mutual Funds?”.

    Great place to start, huh?

    Luckily I was quickly pointed towards the world of personal finance blogs/book and that really began to point me in the right direction so I could move to Transformation #3. I like this Transformation structure and look forward to the third Investing post!

  • Ryan @ Just Another Dollar Jun 15, 2017, 6:28 am

    Great post! I went through my first series of transformations around stock market investing in 2008. I made a 24% return opening my first investment account at the bottom of the crash. I thought I was winning because I was smart, but could’ve probably picked anything in that market and done well.

    My next transformation will be in Real Estate investing. I have realized it is possible to generate great returns and cash flow by working with extremely successful people. Knowing that it’s possible gives me the drive to achieve it for myself. Looking forward to the next post!

  • Mrs. Picky Pincher Jun 15, 2017, 7:53 am

    Bahaha, I love the Matrix analogy. 🙂 Once you take the pill and dive into the world of FIRE, you can never go back.

  • Counting Quarters Jun 16, 2017, 8:02 pm

    It amazes me more and more every day how many different perspectives and paths there are to take to financial freedom.

    Great article!

Leave a Comment

View the Best Finance Blogs