No doubt if you’re reading this article, you’ve read a few books and articles on how you should invest. And it’s likely that many of you reading this, have even tried some of the strategies that you’ve read about, and found that they “didn’t work” for you.
You may be wondering why it worked for the author and not for you. Don’t feel bad – I have had these same feelings in the past; but fortunately I spent enough time studying this topic -and myself – to hopefully give you some helpful direction so that you can get past investing frustrations.
First of all, investing and trading (especially trading) will humble you just like attempting to be good at a sport or a martial art humbles you. All of your personality flaws come out – MAGNIFIED – when you are making market/investing decisions. For example, if you struggle with calming your inner anxiety (like I do!), then taking large positions might create a lot of inner stress for you. Especially if they don’t go up:). So if you’re like me, and experience this type of anxiety innately, you either have to find another strategy or trick your mind to work around it. Because if you don’t, your anxiety about (e.g.) losing money or making a mistake blows up your plan and potentially puts you into a death spiral of compounding bad decisions .
And furthermore, if you don’t address this problem, or whatever emotional and psychological challenges you have, you will get blasted financially. And these types of problems aren’t just for people who are scared to lose. There are people on the other side of the fence – ones who go way too aggressive (typically hoping to get rich quickly) who have to learn to control risk and not try to get rich in one shot. If not, they can end up in the same bad place.
So what should you do? Should you continue to read articles and books and try out strategies? Yes I think you should but first, you need to work on you. Here’s how I recommend you approach investing and trading, whether you do it yourself, work with a money manager, or oversee funds for someone else.
A. You need to first assess your mental baggage
There are some great trading coaches that offer excellent books and courses on figuring yourself out. Van Tharp is the big one that comes to mind but there are other good ones too. Brett Steenbarger is a newer face on the trading coach scene. He blogs at TraderFeed.
B. Continue to study the great investors and traders
While doing the self improvement work, continue to read books about great traders and
investors. Jack Schwager’s Market Wizard series is the most obvious way to learn the way that some of the greats have invested and traded without a sales pitch for a “can’t lose trading system.” Plus Schwager’s books may be the only place to read about some very successful reclusive traders as well as some non-reclusive guys (like Mark Minervini).
If you are a value investing long term hold type of person, there are plenty of books on Warren Buffet to choose from. You may also want to consider anything written by Seth Klarman and Daniel Loeb – just to give a few examples of value investors.
C. Stay in the proper frame of mind by avoiding mental junk food
Just like when you’re trying to be fit, and there is plenty of junk food temptation to take you off your
game, there is plenty of investing and trading junk food. Stock market junk food includes generic financial TV (you know who they are), flashy headlines with “3 Investing Tips to do Now” etc and emailed stock tips with 9 pages of small print disclosure where the email author basically says “after all you idiots buy the stock and push the price up, I am going to sell the shares given to me by the company I am pumping in this email.”
We don’t want to expose ourselves to that crap. If you want good input, and you should be consuming positive input to keep you thinking the right way, here are some tactics to consider:
- make sure the TV is off unless someone you are trying to learn from is being interviewed. You turn it on for them, then turn it off.
- subscribe to newsletters that provide you value in your task. Many traders will say for example, that The Kirk Report is an excellent resource for traders (subscription fee). Investors could benefit from reading Buffet’s annual letter, Jeremy Grantham’s quarterly newsletter at GMO, and reading investor letters by successful money managers like Seth Klarman, that often appear for free on various websites (use Google to find).
- Have a daily routine – this keeps you from making dumb mistakes like buying something you heard about without researching or seeing if it fits in your plan.
- Use Evernote (I do this) or some other service to save good articles that motivate you and educate you and build a library that you can read anytime you need a refresher.
D. Take a break and recharge every so often
Many of the greats do this. The market will always be there and 99% of the time, nothing changes over a week. Therefore, recharge the batteries every so often and step away from the intense research/trading/reading and enjoy life outside of the market.
Photo courtesy of Takashi Hososhima
What do you do? Are you working on your approach to the markets? I have a few ways to approach things which I’ll share in a future article. Thanks for reading and call (888.278.9433) or email us if you’d like to talk more