The Attitude To Investing - Do You Have What It Takes?
When it comes to making investments wisely, few things count as much as having the right attitude. What does attitude have to do with it? Well, it's simple: investments need to be based solely on information and particular reasons that relate strictly to the investment itself and not anything else. The worst thing an investor can do is end up making decisions based on extraneous affairs that are irrelevant to the investment. That's where the saying "Plan the trade, and trade the plan" comes from. This article details some points which may assist with this.
1. Only invest with money that is not and will not be destined for basic living expenses. Even if the money is needed only several months down the line do not even think of using it for an investment. The reason for this is that if you do invest that money, subsequent decisions on the investment will be shaped by basic living expense needs, which strictly speaking is not a factor pertinent to the investment.
To give an example, imagine that that money is destined for a mortgage repayment in three months time. It just may turn out that your investment drops precisely on the week when you need that cash. In this scenario, following the correct strategy you would hold off for another week; yet given your need to repay your mortgage on time, you close that particular investment. In the end, the decisions relating to the investment were made based on information irrelevant to the investment itself and a loss is incurred. Hence the wisdom of only investing money that you do not need for living.
2. When making investments, it is often a helpful technique to imagine to yourself that that money has been completely lost the minute you invested it. The simple reality is that many investments look bad before they end up looking good, which is simply due to the normal fluctuations in investment markets. Countless investments have been ruined by people (myself included) who chickened out too soon and didn't allow the investment to come to fruition in time.
If you convince yourself the money is gone when you invest it, its much easier to avoid getting the jitters during these times. (And let me tell you, there is nothing worse than closing a trade early for a loss, only to watch it turn around and become successful, if only you had let it run its course.)
3. Another part of your attitude as an investor must be the recognition that failed investments are just a part of the game. Any investor will incur losses at one point or another during their track record; what's important is to know how to react to those losses in the right way, with the right attitude. Letting them affect you in disproportionate measure will keep you from ever becoming a savvy investor in the long term. Below are two very helpful ways for viewing unsuccessful trades:
3a). Rather than considering your trades on a one by one basis, look at them as a complete group. For example, a certain strategy you use may make you a profit four out of five times, which is to say that one out of five times you run a loss. What you should do in this circumstance is rack up the net profit across all five trades, including the losing trade, and divide the result by five. The final figure would be your per trade profit. In this way, the losing trade is merely part of a broader winning strategy: 20% of the total net result is in fact due to the losing trade, because it is a necessary part of a broader strategy.
This way you will be encouraged to continue trading your successful strategy, rather than get discouraged when one trade goes wrong.
3b). View your losses as education expenses. Most professionals in the finance industries have spent years and tens of thousands of dollars in universities and educational facilities, learning to ply their trade. Unsuccessful trades are a professional investors "university". To do this properly you have to make sure you analyze these trades and learn from them. Do this in a professional and unemotional manner, otherwise you may fail to make the grade, which will mean you miss out on making long term money through investing.
Investment markets are renowned for being able to bring out the very best and the very worst in people. It is fundamental that an investor learn how to dominate and control such emotions, remove them from the decision making process, so that they don't weigh where they don't belong. Remember the saying: "Plan the trade, trade the plan. - 23217
1. Only invest with money that is not and will not be destined for basic living expenses. Even if the money is needed only several months down the line do not even think of using it for an investment. The reason for this is that if you do invest that money, subsequent decisions on the investment will be shaped by basic living expense needs, which strictly speaking is not a factor pertinent to the investment.
To give an example, imagine that that money is destined for a mortgage repayment in three months time. It just may turn out that your investment drops precisely on the week when you need that cash. In this scenario, following the correct strategy you would hold off for another week; yet given your need to repay your mortgage on time, you close that particular investment. In the end, the decisions relating to the investment were made based on information irrelevant to the investment itself and a loss is incurred. Hence the wisdom of only investing money that you do not need for living.
2. When making investments, it is often a helpful technique to imagine to yourself that that money has been completely lost the minute you invested it. The simple reality is that many investments look bad before they end up looking good, which is simply due to the normal fluctuations in investment markets. Countless investments have been ruined by people (myself included) who chickened out too soon and didn't allow the investment to come to fruition in time.
If you convince yourself the money is gone when you invest it, its much easier to avoid getting the jitters during these times. (And let me tell you, there is nothing worse than closing a trade early for a loss, only to watch it turn around and become successful, if only you had let it run its course.)
3. Another part of your attitude as an investor must be the recognition that failed investments are just a part of the game. Any investor will incur losses at one point or another during their track record; what's important is to know how to react to those losses in the right way, with the right attitude. Letting them affect you in disproportionate measure will keep you from ever becoming a savvy investor in the long term. Below are two very helpful ways for viewing unsuccessful trades:
3a). Rather than considering your trades on a one by one basis, look at them as a complete group. For example, a certain strategy you use may make you a profit four out of five times, which is to say that one out of five times you run a loss. What you should do in this circumstance is rack up the net profit across all five trades, including the losing trade, and divide the result by five. The final figure would be your per trade profit. In this way, the losing trade is merely part of a broader winning strategy: 20% of the total net result is in fact due to the losing trade, because it is a necessary part of a broader strategy.
This way you will be encouraged to continue trading your successful strategy, rather than get discouraged when one trade goes wrong.
3b). View your losses as education expenses. Most professionals in the finance industries have spent years and tens of thousands of dollars in universities and educational facilities, learning to ply their trade. Unsuccessful trades are a professional investors "university". To do this properly you have to make sure you analyze these trades and learn from them. Do this in a professional and unemotional manner, otherwise you may fail to make the grade, which will mean you miss out on making long term money through investing.
Investment markets are renowned for being able to bring out the very best and the very worst in people. It is fundamental that an investor learn how to dominate and control such emotions, remove them from the decision making process, so that they don't weigh where they don't belong. Remember the saying: "Plan the trade, trade the plan. - 23217
About the Author:
Damian Papworth invests for his lifestyle and his family. Recently he researched baby high chairs. He put a website together with his analysis on high chairs for babies.
posted by X - Men @ 9:04 AM
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