The Attitude To Investing - Do You Have What It Takes?
Attitude with investing is so important. "Why?" you ask. Its simple really. When investing, you want all your decisions to be made on the information relating to the investment and for reasons specific to the investment. You do not want to find yourself in the position where you are making decisions about an investment, because of factors which are irrelevant to the investment. Thus the adage, "Plan the trade, and trade the plan". Here are a few pointers which may help.
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. A very effective and clever technique in making investments is to imagine to yourself that the money has been lost completely upon investment. The rationale here is also somewhat simple. Many if not most investments will suffer at one point or another and countless investors (including this one) get cold feet too soon in the game and end up pulling out. Often then the investment turns around into a gain, had the investment been given the time to mature.
Thus, by convincing yourself the money is lost once you invest it, you effectively spare yourself the nervousness many investors suffer doing this lapse of time. Take it from someone who knows: nothing is more frustrating than closing an investment early at a loss, only to watch the same investment for others pull a 180 and make them loads of money...if only!
3. Any and every investor needs to accept that failed trades are a basic fact of life. Everybody will make a certain amount of trades that run into losses. The important part here is the attitude that you adopt in the face of such losses: being a poor, vision-less loser in such events will prevent you from ever becoming a successful investor over the long haul. Following are two exemplary ways to contemplate an unsuccessful trade.
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.
In this manner, you save yourself from abandoning a good method simply for fear of small failures.
3b). Consider the losses you make as educational expenses. Most folks dedicated to the industry of finance have dedicated many years and thousands of dollars on educating themselves on the matter at prestigious universities, getting a grip on the trade. The equivalent for somebody striking up in the field from zero is a series of unsuccessful trades. This implies though you actually learn from them. This must be done professionally and objectively, without emotions, otherwise you will never make the cut and will miss out on lucrative long term gains through investments.
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. - 23223
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. A very effective and clever technique in making investments is to imagine to yourself that the money has been lost completely upon investment. The rationale here is also somewhat simple. Many if not most investments will suffer at one point or another and countless investors (including this one) get cold feet too soon in the game and end up pulling out. Often then the investment turns around into a gain, had the investment been given the time to mature.
Thus, by convincing yourself the money is lost once you invest it, you effectively spare yourself the nervousness many investors suffer doing this lapse of time. Take it from someone who knows: nothing is more frustrating than closing an investment early at a loss, only to watch the same investment for others pull a 180 and make them loads of money...if only!
3. Any and every investor needs to accept that failed trades are a basic fact of life. Everybody will make a certain amount of trades that run into losses. The important part here is the attitude that you adopt in the face of such losses: being a poor, vision-less loser in such events will prevent you from ever becoming a successful investor over the long haul. Following are two exemplary ways to contemplate an unsuccessful trade.
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.
In this manner, you save yourself from abandoning a good method simply for fear of small failures.
3b). Consider the losses you make as educational expenses. Most folks dedicated to the industry of finance have dedicated many years and thousands of dollars on educating themselves on the matter at prestigious universities, getting a grip on the trade. The equivalent for somebody striking up in the field from zero is a series of unsuccessful trades. This implies though you actually learn from them. This must be done professionally and objectively, without emotions, otherwise you will never make the cut and will miss out on lucrative long term gains through investments.
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. - 23223
About the Author:
Damian Papworth makes investments for his way of living and his family. Recently he investigated baby high chairs. He put a website together with his analysis on high chairs for babies.
posted by X - Men @ 6:32 AM
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