The Correct Attitude for Successful Investment
When it comes to making investments wisely, few things count as much as having the right attitude. What does attitude have to do with it? Well, it's simple: investments need to be based solely on information and particular reasons that relate strictly to the investment itself and not anything else. The worst thing an investor can do is end up making decisions based on extraneous affairs that are irrelevant to the investment. That's where the saying "Plan the trade, and trade the plan" comes from. This article details some points which may assist with this.
1. Never invest money you need to use for your living expenses. Even if you don't need this money this month, next month, but you know you'll need it in 3 months, don't invest it. If you put money in any investment market that you need to pay for your living expenses, at some stage you will need to make a decision about that investment, due to your living expense commitments.
To give an example, imagine that that money is destined for a mortgage repayment in three months time. It just may turn out that your investment drops precisely on the week when you need that cash. In this scenario, following the correct strategy you would hold off for another week; yet given your need to repay your mortgage on time, you close that particular investment. In the end, the decisions relating to the investment were made based on information irrelevant to the investment itself and a loss is incurred. Hence the wisdom of only investing money that you do not need for living.
2. A very effective and clever technique in making investments is to imagine to yourself that the money has been lost completely upon investment. The rationale here is also somewhat simple. Many if not most investments will suffer at one point or another and countless investors (including this one) get cold feet too soon in the game and end up pulling out. Often then the investment turns around into a gain, had the investment been given the time to mature.
Thus, by convincing yourself the money is lost once you invest it, you effectively spare yourself the nervousness many investors suffer doing this lapse of time. Take it from someone who knows: nothing is more frustrating than closing an investment early at a loss, only to watch the same investment for others pull a 180 and make them loads of money...if only!
3. Another part of your attitude as an investor must be the recognition that failed investments are just a part of the game. Any investor will incur losses at one point or another during their track record; what's important is to know how to react to those losses in the right way, with the right attitude. Letting them affect you in disproportionate measure will keep you from ever becoming a savvy investor in the long term. Below are two very helpful ways for viewing unsuccessful trades:
3a). Rather than considering your trades on a one by one basis, look at them as a complete group. For example, a certain strategy you use may make you a profit four out of five times, which is to say that one out of five times you run a loss. What you should do in this circumstance is rack up the net profit across all five trades, including the losing trade, and divide the result by five. The final figure would be your per trade profit. In this way, the losing trade is merely part of a broader winning strategy: 20% of the total net result is in fact due to the losing trade, because it is a necessary part of a broader strategy.
In this manner, you save yourself from abandoning a good method simply for fear of small failures.
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.
Investment work and the markets are known for being able to bring out people's best and worst features. Thus, controlling one's emotional and irrational reactions is fundamental so that they don't cloud decisions. As the saying goes: "Plan the trade, and trade the plan. - 23305
1. Never invest money you need to use for your living expenses. Even if you don't need this money this month, next month, but you know you'll need it in 3 months, don't invest it. If you put money in any investment market that you need to pay for your living expenses, at some stage you will need to make a decision about that investment, due to your living expense commitments.
To give an example, imagine that that money is destined for a mortgage repayment in three months time. It just may turn out that your investment drops precisely on the week when you need that cash. In this scenario, following the correct strategy you would hold off for another week; yet given your need to repay your mortgage on time, you close that particular investment. In the end, the decisions relating to the investment were made based on information irrelevant to the investment itself and a loss is incurred. Hence the wisdom of only investing money that you do not need for living.
2. A very effective and clever technique in making investments is to imagine to yourself that the money has been lost completely upon investment. The rationale here is also somewhat simple. Many if not most investments will suffer at one point or another and countless investors (including this one) get cold feet too soon in the game and end up pulling out. Often then the investment turns around into a gain, had the investment been given the time to mature.
Thus, by convincing yourself the money is lost once you invest it, you effectively spare yourself the nervousness many investors suffer doing this lapse of time. Take it from someone who knows: nothing is more frustrating than closing an investment early at a loss, only to watch the same investment for others pull a 180 and make them loads of money...if only!
3. Another part of your attitude as an investor must be the recognition that failed investments are just a part of the game. Any investor will incur losses at one point or another during their track record; what's important is to know how to react to those losses in the right way, with the right attitude. Letting them affect you in disproportionate measure will keep you from ever becoming a savvy investor in the long term. Below are two very helpful ways for viewing unsuccessful trades:
3a). Rather than considering your trades on a one by one basis, look at them as a complete group. For example, a certain strategy you use may make you a profit four out of five times, which is to say that one out of five times you run a loss. What you should do in this circumstance is rack up the net profit across all five trades, including the losing trade, and divide the result by five. The final figure would be your per trade profit. In this way, the losing trade is merely part of a broader winning strategy: 20% of the total net result is in fact due to the losing trade, because it is a necessary part of a broader strategy.
In this manner, you save yourself from abandoning a good method simply for fear of small failures.
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.
Investment work and the markets are known for being able to bring out people's best and worst features. Thus, controlling one's emotional and irrational reactions is fundamental so that they don't cloud decisions. As the saying goes: "Plan the trade, and trade the plan. - 23305
About the Author:
Damian Papworth invests for his lifestyle and his family. Recently he investigated baby high chairs. He put a website together with his analysis on high chairs for babies.
posted by Mr. Forex at
6:48 AM
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