The Correct Attitude for Successful Investment
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 make an investment with money you need for basic living expenses. Even if that sum of money isn't needed this month nor the next, but rather three months down the road, do not put it into an investment. Investments made with money that should have been spent on living expenses will later suffer as you need to make decisions based on living expenses rather than on more adequate factors.
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). Don't look at trades individually, rather look at your trades as a group object. For example, you may have a strategy that works four out of five trades. One out of five trades on average makes a loss. What you need to do is tally your net profit over all five trades, including the loss, and divide this by five. The result is your profit per trade. If you do this, you can actually view your losing trades as profit earners. IE. You attribute 20% of your five trade net result to the unsuccessful trade, simply because it is a crucial part of a successful strategy.
The end result of this kind of attitude is that you don't let the fear of tiny mistakes or failures keep you from accomplishing larger goals.
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. - 23226
1. Never make an investment with money you need for basic living expenses. Even if that sum of money isn't needed this month nor the next, but rather three months down the road, do not put it into an investment. Investments made with money that should have been spent on living expenses will later suffer as you need to make decisions based on living expenses rather than on more adequate factors.
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). Don't look at trades individually, rather look at your trades as a group object. For example, you may have a strategy that works four out of five trades. One out of five trades on average makes a loss. What you need to do is tally your net profit over all five trades, including the loss, and divide this by five. The result is your profit per trade. If you do this, you can actually view your losing trades as profit earners. IE. You attribute 20% of your five trade net result to the unsuccessful trade, simply because it is a crucial part of a successful strategy.
The end result of this kind of attitude is that you don't let the fear of tiny mistakes or failures keep you from accomplishing larger goals.
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. - 23226
About the Author:
Damian Papworth makes investments for his lifestyle and his family. Not too long ago he researched baby high chairs. He put a website together with his findings on high chairs for babies.
posted by X - Men @ 12:44 AM
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