We follow up on our “7 Secrets of Successful Investing” with a series of shorter articles that cover specific topics for success in investing. As said before, successful investing secrets are primarily counterintuitive. Successful investing requires counterintuitive practices. It requires ways of thinking and acting that go against the ‘norms’ we apply in our (professional) lives. One recurring topic that we have found after working for more than 5 years with investors around the world is the mental and emotional trigger that comes with a cash position. Whenever an investor has funds available in the form of a cash position he/she is more focused on spending the cash than the question how to WISELY invest and what is the SMARTEST investment. This internal trigger is a recipe for failure. Successful investing requires external triggers to initiate an investment.
We have heard it so often. It goes somehow like this:
- “I am ready to invest. What should I buy?”
- “I will receive some funds in the near future. What should I be buying?”
- “I will sell a property and will have cash available to invest. What should I invest in?”
The red line here is the eagerness of the investor to invest.
While anyone could recognize this being an internal trigger it is apparently very tough for the investor to recognize this with him/herself. Self awareness is the word that comes to mind.
This is the problem: if you want to invest because you have cash available you are putting your own desire at the center of the universe. You ignore the fact that successful investing is all about and only about TIMING. Big difference, huge difference.
Again, this is no criticism. This is normal human behavior. It is intuitive.
But counter-intuitive is the secret for investing success, especially in financial markets.
As said before, successful investing requires us to be counterintuitive. Every time we think about initiating a position we have to ask ourselves whether this is a habit from us being human (similarly, whether this is a habit from our professional lives). If the answer is ‘yes’ better take a step back and challenge that thought or intention.
So, then what is the solution?
The solution is simple, so simple that it is almost ridiculous that we are dedicating an article to this. Don’t think in terms of your cash position. Be focused on trends in the market. Spend your precious time trying to identify those emerging trends are. That’s how you should spend your time and intellectual effort.
Whenever you find yourself spending time and effort on the question how you are going to invest your capital (prior to having found an emerging market trend or a ‘juicy’ opportunity) it should signal that you skipped a few crucial steps in your investing process. It should raise a red flag. You should take a step back, forget about that cash position that you can spend right here right now, and act as if you had no funds available.
Think of it this way: always pretend as if you have no cash, and you can only ‘swap’ existing positions for a new position. Are you really convinced that you want to close a position for a new one? If the answer is ‘yes’ then you have more evidence that you have the right trigger to act.
While most articles on the web are like this one covering superficial tips and habits we always cover essential topics for success. In all our premium services we spend a lot of time and effort on the education and the inner world of the trader or investor. In Trade Alerts we focus on habits and pitfalls in short term trading. In Momentum Investing we write about investing decisions, the decisioning process and how the inner world contributes to success. These topics are not covered by any other premium service, it is mostly a blame game if a stock goes against the expected trend. Not so over here, we use any opportunity to understand ourselves better, and in doing so we become better traders or investors. The elephant in the room is a common topic in our premium services.