Novice investors seldom like to hear that before asset growth (trading) must come asset protection. Boring! Similarly, they are reticent in embracing the reality that before they begin analyzing equities, they must first analyze themselves. Really? Legendary stock-picker Peter Lynch specifically warned investors of these "Investor Self" priorities. He insisted that to succeed as an investor, this short checklist was the gateway for all with serious aspirations of success.
The old cliche — "I worked a long time to become an overnight success" — is often appropriate in the investment arena. Patience is a prerequisite for profits. Jeff Bezos wrote in his annual shareholder letter that most people think if they work hard and practice every day, they should master a handstand in two weeks. In reality, it takes six months of daily practice. Takes practice and patience.
There can be only one hand that pulls the trigger. Be prepared to accept both the responsibility and the consequences of your investing endeavors.
One needs to understand that a tomato is a fruit, but don't put one in a fruit salad. What seems obvious is sometimes not. Buy more of an investment that's working. That is common sense. Without it you have many expensive lessons ahead of you.
Tolerance For Pain.
Successful investors understand that tolerance for pain is not the absence of pain. Instead it's the capacity to execute a plan of action in spite of the pain.
The markets are never static. The divine discontent of economic markets breeds new companies and technologies each and every day. Yesterday's "WOW" is today's ordinary. If that doesn't excite you, look elsewhere for fulfillment.
Emotions impact your perceptions. Be in touch with your emotions. In lieu of moving to a desert island, I focus on what my charts are telling me. Movie makers have perfected the art of illusions. News media has fine-tuned disinformation. It's a plague if you let it impact you. Talking heads are selling advertising, not profitable investing methodologies. My charts don't lie to me. My charts provide the impartial detachment to which I aspire.
Investing — like entrepreneurship — appeals to some and not to others. When you are brutally honest with yourself, you need to answer that question with respect to yourself. If you do catch the stock market bug and you persist, it can be a wonderful world, producing a lifetime of fulfilling achievements and financial rewards. Nice people, too!
Before you invest in the markets, leave your ego at the door. If not, the market will humble you because the market is ALWAYS right.
This quote by Charles Darwin captures it: "It's not the strongest of the species that survives, not the most intelligent that survives. It is the one that is most adaptable to change." Don't be rigid.
Willingness To Do Independent Research.
Personally, I've always enjoyed researching papers in college, new car specifications or finding the best plumbing contractor. But that's just me. These days, the challenge is finding truth amongst all the dark web information masquerading as knowledge and facts.
Willingness To Admit Mistakes.
To phrase it in a positive light, let your winners run and sell everything else. In my experience, selling is the hardest part of investing. Just because you choose to ignore your mistakes, they will not ignore you. Smart investors learn from their mistakes, but the smartest learn from other people's mistakes. Bill Gates said, "It's fine to celebrate success, but it's more important to heed the lessons of failure."
Ability To Ignore General Panic.
The only people who get hurt on a roller coaster are the ones who jump off. Studying historical price charts can illustrate what panic smells like. Human tendencies haven't changed. Charts are pictures of behavior in past panics.
Discipline Yourself To Resist Your Human Nature.
Investing is fertile ground for emotional attachments, personal behavioral biases, familiarity bias and a great deal of other emotional baggage that must be first studied and understood before being controlled. Precisely why the most important chapter in our book, Tensile Trading, is titled "The Investor Self". Easy to say. Hard to do, but a very high leverage worthwhile endeavor. Your bottom line will thank you.
Trade well; trade with discipline!
- Gatis Roze, MBA, CMT
- Author, "Tensile Trading: The 10 Essential Stages of Stock Market Mastery" (Wiley, 2016)
- Presenter of the best-selling "Tensile Trading" DVD seminar
- Presenter of the "How to Master Your Asset Allocation Profile DVD" seminar
- Developer of the Tensile Trading ChartPack for StockCharts members