One of the best things I learned from studying the psychology of investing is to enjoy your wins, and most importantly, learn to keep your money.
After any major winning streak, or after making whatever sum of money is substantial to you, stop and walk away for a while. Forget about investing for a bit.
Do not jump back into it with plans to use your winnings for an even bigger deal. Put the money away and let the rush of emotion fade.
If you rush back in, you will almost certainly lose money on the next deal. The reason for this is that the thrill of making money will cloud your judgment and you won’t take the same care and do the same due diligence the second time around.
The best way to deal with greed is to listen to your own internal risk thermometer. If you get greedy and buy a lot of something, you’ll know it is too much when you can’t really sleep; you are thinking about it all the time.
Always listen to yourself if this happens, and sell to the sleeping point. If you bought 1,000 shares of stock and you are worried about it and can’t sleep, or find yourself checking the stock price ten times every day, sell some shares.
If you are still checking the price over and over, then sell some more.
At some point, your internal risk thermometer will stabilize at a level that is right for you, and you will stop worrying. That may be at 800 shares, 80 shares, or even 8 shares.
James O’Shaughnessy wrote an interesting book published in 1997 called What Works On Wall Street. He undertook a comprehensive look at different investing strategies and approaches. Though he wrote it with the stock market in mind, these strategies work for all types of investments. Some of the methods he found to work consistently are:
1) Always use strategies that are proven to work long term
Don’t invest intuitively, or emotionally, or by jumping on hot tips. A good system takes the emotions out of your investment decisions.
2) Find a system or approach that works for you, and stick to it
Even a mediocre investment system will beat those investors who jump in and out of the market on whims, fears, and greed. There are countless systems and approaches to choosing investments. Your best strategy is to find one that appeals to you and stick with it for the long haul.
All the Lifetime Investor courses I’ve developed include numerous proven systems to make money, whether it is with stocks, real estate, tax liens, bonds, or gold and silver.
Mediocre investors tend to jump from one strategy to another when returns are not what they expected. For a typical unsuccessful investor, they buy with a long-term, 10-year horizon, and then sell a year later because the market dropped 10%. Or they buy stocks based on the Dogs of the Dow system, but sell them when they don’t go up much. Or they buy dividend-paying stocks, only to sell them when they see growth stocks zooming up much more than their dividend stocks.
3) Keep things simple
A simple mechanical approach followed religiously will make you money, as long as money management is part of the system.
As you continue your investment education, you will come across sophisticated approaches and techniques using options, straddles, and other leveraged products. Forget about these approaches until after you have found a system that is making you money consistently, and then experiment if adding these advanced strategies will give you increased returns.
4) “This time will be different” won’t be different
When you find yourself thinking, “This time will be different”, it’s time to step back and reevaluate your decision. “This time will be different” almost always won’t be different. It is greed talking.
Investing with the “this time is different” mindset will sooner or later lead to losses.
Capital Properties
Nice content and tips that every investor can follow through it.