Finding success in investing is the primary goal of every investor. However, there are a few things that can determine whether you will be a successful investor. One of them is your mentality before your start investing. To increase your odds of becoming a decent (or even good) investor, there are a few mindsets that you need to adopt.
1. Avoid the herd mentality
Investing in today’s context is like trying to decipher the truth among the fake news. It is hard to silence all that amount of noise and over information from the media. The media, so-called experts and even your friends might be calling for a bull run after witnessing new record highs in the stock market. Taking their “advice”, you will buy stocks that they have recommended. Few days later, they might be anticipating for the market to crash. Out of fear of making losses, you sell the stocks that you have bought. This cycle repeats itself over and over again.
The reality is that nobody knows what the future holds. But yet, everyone is trying to make “prophecies” of whether the markets will be up or down. By listening to the so-called “prophecies”, you fall into the abyss of following the herd mentality. You buy because you think everyone is buying; You sell because you think everyone is selling. At the end of the day, you will realize that you are piling up your losses by following the herd.
If you really want to make decent returns from investing, you need to learn to avoid the herd mentality. Do not follow others blindly, even if they are so-called experts or your trusted friend.
2. Be realistic; Don’t be obsessed over quick success
Humans have the tendency to over emphasise the importance of getting to success quickly. In terms of investing, it translates to making good investment returns as soon as possible. As such, you do not take long term perspective on your investments. This puts you in a dangerous situation of falling into the “dark side”, i.e. speculating instead of investing.
Investing involves doing sufficient research and taking calculated risks to grow your capital in the long run. Speculating, on the other hand, is almost akin to gambling where you take on high risks for small returns in the short run. The obsession to gain quick success might be innate in our nature. But in order to be a good investor, you need to ditch this unhealthy mentality before it creeps in and affect your investments.
Related: 7 Habits of Successful Investors
3. Don’t let emotions cloud your judgement
Investing involves a lot of judgement calls from you as an investor. Unfortunately, we aren’t the best living organism that makes sound judgement without letting emotions distort them. From common behavioural biases to giving in to fear and greed, we are constantly at risk of being misguided by our emotions. The art of keeping your emotions in tab during investing becomes a key soft skill that you need to adopt and hone.
An area of investing where most people let emotions cloud their judgement is in making decision to cut losses and ride on winners. There is a propensity for investors to sell winning stocks early. This is because the winning stocks tend to show profits in early stages and arouse your attention. You will then be eager to lock in quick-wins for your portfolio.
On the other hand, the fear of regret often induces investors to sell losing stocks late. This is because you don’t want to feel regret that you have made a bad investment. You are “confident” that holding it longer will help reverse your loss.
4. There’s no easy path to investing success
Success never comes easy, be it in your career, your love life or in your investments. Yet, there is an inclination for us to think that an easy path to success exists.
In investing, you need to make time to go through research and financial reports to identify potential stocks to invest in. Once you have identified those stocks, you need to monitor them consistently before taking a position. After which, you have to rebalance your portfolio regularly to ensure that the stocks still possess the same attractive characteristics you bought them for.
It is important to remember that every step in investing requires both time and effort. Thus, before you start your investment journey, you need to constantly remind yourself that success in investing comes at a price. If you find yourself investing effortlessly, it is an early warning that you are taking the easy path. This usually doesn’t end well, unless you are in a bull market.