The Attitude To Investing - Do You Have What It Takes?
In the world of investments, attitude counts for a lot. Why is that, you may be asking? The answer is simple: in investing, it's important that your decisions be founded exclusively on information and reasons pertinent to that investment. You never want to put yourself in the situation where you end up making a decision on an investment based on completely extraneous and irrelevant matters. Hence the saying "Plan the trade, and trade the plan." I've listed some points which may help you with this.
1. Never invest money you need to use for your living expenses. Even if you don't need this money this month, next month, but you know you'll need it in 3 months, don't invest it. If you put money in any investment market that you need to pay for your living expenses, at some stage you will need to make a decision about that investment, due to your living expense commitments.
For example, Lets say you need that money in 3 months to pay a mortgage repayment. Your investment may temporarily drop on the very week you need the money. In this situation, the correct decision, based on your strategy, could be to hold for another week. But because you have the mortgage, you make the decision to close the investment. This decision was made on information which was irrelevant to the investment and ended up ruining the trade and causing a loss. This issue would never exist if you only invested money you didn't need.
2. When you invest your money, it may help you to imagine that that money is completely lost as soon as you invest it. Quite often investments look like they are going bad before they turn around. It just happens as part of the typical fluctuations of the investment market. Many a good investment has been turned into a bad one by people (me included) who get scared and close a trade, instead of giving it the time to complete successfully.
By telling yourself that it's lost money the moment you put it into an investment, you are adopting an attitude which will spare you from the nervous impulses that ruin many investments. Take my word for it: few things are as frustrating and disappointing as pulling out of an investment to incur a loss, only to see it bounce back for others later and go on to perform excellently.
3. Failed trades are a simple fact of life with every investor. You will make trades that lose you money. Your attitude to losing trades is extremely important. You will never end up a successful long term investor if you have the wrong attitude to making losses. Here are 2 great ways to view a trade which is not successful.
3a). Instead of looking at your portfolio as a series of individual investments, think of them as a group or a totality. Imagine that based on a certain investment strategy you are running, four out of every five investments runs a profit (which alternatively means that one out of five is a loss). Instead of considering the losing investment as independent of the other four, rack all five up together in terms of net profit and then divide that by five, not four. The answer, which is your profit per trade, must reflect on all trades in the strategy and in that sense, 20% of the final net profit is courtesy of the failed trade. Remember: if it's a necessary part of the overall strategy, it is not strictly a loss.
This way you will be encouraged to continue trading your successful strategy, rather than get discouraged when one trade goes wrong.
3b). Consider your losses to be tuition for your investment education. In case you are not one of them, most of the people in this industry have put down many thousands of dollars and dedicated many years of their lives on getting degrees in the matter. For those that jump in without such degrees, the education comes as part of the failed trades: hence, make sure you learn from each and every one of them! The right, professional attitude is necessary here, free of emotions, as otherwise you're sure to lose the long term profitability of such endeavors.
The investment markets, any of them, can bring out the best and worst of your emotions. It is ultra important to get these under control so they don't impact your investment decisions. Remember, Plan the trade, and trade the plan. - 23210
1. Never invest money you need to use for your living expenses. Even if you don't need this money this month, next month, but you know you'll need it in 3 months, don't invest it. If you put money in any investment market that you need to pay for your living expenses, at some stage you will need to make a decision about that investment, due to your living expense commitments.
For example, Lets say you need that money in 3 months to pay a mortgage repayment. Your investment may temporarily drop on the very week you need the money. In this situation, the correct decision, based on your strategy, could be to hold for another week. But because you have the mortgage, you make the decision to close the investment. This decision was made on information which was irrelevant to the investment and ended up ruining the trade and causing a loss. This issue would never exist if you only invested money you didn't need.
2. When you invest your money, it may help you to imagine that that money is completely lost as soon as you invest it. Quite often investments look like they are going bad before they turn around. It just happens as part of the typical fluctuations of the investment market. Many a good investment has been turned into a bad one by people (me included) who get scared and close a trade, instead of giving it the time to complete successfully.
By telling yourself that it's lost money the moment you put it into an investment, you are adopting an attitude which will spare you from the nervous impulses that ruin many investments. Take my word for it: few things are as frustrating and disappointing as pulling out of an investment to incur a loss, only to see it bounce back for others later and go on to perform excellently.
3. Failed trades are a simple fact of life with every investor. You will make trades that lose you money. Your attitude to losing trades is extremely important. You will never end up a successful long term investor if you have the wrong attitude to making losses. Here are 2 great ways to view a trade which is not successful.
3a). Instead of looking at your portfolio as a series of individual investments, think of them as a group or a totality. Imagine that based on a certain investment strategy you are running, four out of every five investments runs a profit (which alternatively means that one out of five is a loss). Instead of considering the losing investment as independent of the other four, rack all five up together in terms of net profit and then divide that by five, not four. The answer, which is your profit per trade, must reflect on all trades in the strategy and in that sense, 20% of the final net profit is courtesy of the failed trade. Remember: if it's a necessary part of the overall strategy, it is not strictly a loss.
This way you will be encouraged to continue trading your successful strategy, rather than get discouraged when one trade goes wrong.
3b). Consider your losses to be tuition for your investment education. In case you are not one of them, most of the people in this industry have put down many thousands of dollars and dedicated many years of their lives on getting degrees in the matter. For those that jump in without such degrees, the education comes as part of the failed trades: hence, make sure you learn from each and every one of them! The right, professional attitude is necessary here, free of emotions, as otherwise you're sure to lose the long term profitability of such endeavors.
The investment markets, any of them, can bring out the best and worst of your emotions. It is ultra important to get these under control so they don't impact your investment decisions. Remember, Plan the trade, and trade the plan. - 23210
About the Author:
Damian Papworth invests for his way of living and his family. Recently he researched baby high chairs. He created a website with his analysis on high chairs for babies.
posted by X - Men @ 4:48 AM
0 Comments
0 Comments:
Post a Comment
Subscribe to Post Comments [Atom]
<< Home