In this long series of articles about successful investing we focus a lot on the inner world of the investor. It’s the most underexposed topic but a key success factor. In this short article we cover one specific habit of the investor who puts himself at the center of the (financial market) universe. Interestingly, it is a habit that the vast majority is unaware of. As per Tsaklanos his 1/99 Investing Principles it’s only a very small number of market participants that is outrageously successful, they do realize that they are not at the center of the universe.
You grow your capital by timing the market which requires great analysis skills. That’s the rational part of investing.
However, acquiring a great analysis methodology is challenging but not the biggest challenge. By far, the biggest challenge is getting the inner state of the investor ‘under control’.
There is a fine line between success and failure when investing in financial markets.
The one problem we often find in working with investors (but also when we conduct an honest self assessment) is the center-of-the-universe type of thinking. This is how it mostly goes (thought process):
- “Yes, today is a good today: x% higher today in this stock so am sitting on y% ‘profits’.“
- “My investment is not performing, I don’t like it.”
- “This is a great stock because it made x amount on it.“
- “The market came down today, disappointing.“
- “I am ready to invest, what to buy now.”
- “I am freeing up funds (or I am inheriting funds) I want to invest them now.“
And the list goes on. But it’s pretty clear what is the characteristic of this type of thinking: the investor, its positions and portfolio center stage. Along the same lines, the last 2 points suggest this classic disconnect between investor (personal) readiness vs. market readiness: it’s not because the investor is ready to initiate an investment that the market trades at an attractive point.
This is how any human being intuitively thinks and mentally operates. Nothing wrong with it in daily life. However, when investing there is one really important disconnect here: this type of thinking distracts the investor from the important ‘events’ in the market: the trend, the cycle, turning points, rejection scenarios, etc.
Moreover, the underlying thinking is that the individual position as well as the associated entry point does matter.
The reality though is that it does not matter. It does matter for an individual P/L situation but that’s besides the point. In fact, it’s exactly the point we are trying to make. This leads to the wrong focus.
The one and only focus should be the trend on a macro level and micro level.
The other focus is eliminating bias and emotions so that the investor can clearly ‘see‘ the trend.
Interestingly, as explained in the 7 secrets of successful investing, creating success is first and foremost being counter-intuitive:
One insight that is crucial and common to all 7 successful investing secrets is this one: financial market investing success comes with habits and practices that are counterintuitive to humans. Whether it is how you intuitively think about things, or how you handle emotions, or what you typically are aware of (also unaware of) in your day-to-day life… mostly works in the exact opposite way in financial markets.
Think about it. As a market participant you want to give the best of yourself, you want to act and think based on everything you have learnt in your (professional) life, you prepare decisions similar to how you have made the best decisions in your life… and you come to realize that it is the exact opposite you have to do in order to create success in financial markets.
It requires practice but also self-awareness to understand these concepts. The inner world of the investor is one of the most underexposed topics. However, it is a crucial component for success.
Here is one more must-read article about success and investing recently published by InvestingHaven’s research team: Investing Secrets – Beauty Results In Profitable Investments.
Note that in our Momentum Investing service we frequently cover successful investing topics and tips specifically for equityinvestors. In our Trade Alerts service we share a lot of tips on successful trading especially as it relates to the inner state of the trader. The weekend updates in both services are priceless when it comes to tips for success and understanding the inner world of the investor and trader. InvestingHaven is one of the few premium services that covers these topics, and it is much appreciated by members.