Recently, I was reading the book ‘What I Learned Losing A Million Dollars by Jim Paul and Brendan Moynihan. In the foreword written by Jack Schwager, he rightly pointed out the dichotomy in human thinking by highlighting a stimulating anecdote.
“No sane person would walk into a bookstore, go to the medical section, find a book on brain surgery, read it over the weekend, and then believe he could walk into an operating room on Monday morning and perform successful brain surgery. The operative word here is “sane”. Yet how many people do you know who would think that it is perfectly reasonable to walk into a bookstore, go to the investment section, find a book with a title like How I Made A Million Dollars Trading Stocks Last Year, read it over the weekend, and then start trading Monday morning and expect to beat the professionals at their own game. Why this dichotomy in thinking?”
This quote is quite relevant in today’s world of investing. Investing is considered a profession that is relatively easy as compared to any other. If you take any other profession, you must be trained to be successful at it. You must know cricket to play it well, practice the scales and chords to be a good pianist, and must read and continuously polish your writing skills to be a writing pundit.
That’s why Jack wrote about why investing is the only profession where you have a 50/50 chance of winning, which makes many investors think investing is easier than it is.
Investing is perhaps the most peculiar profession in the world. One of the chief reasons is that it deals more with emotional intelligence than the technical skills to be successful. Not that I wish to undermine the role of technical skills here, but once you have identified a fundamentally sound business, then investing is more of an emotional game to have a winning streak in the stock market.
And to reduce the emotional cost of investing, there are many skills or beliefs you must reconsider to be successful.
This brings me back to my topic – Subtract, don’t add!
But what does it indicate? It simply means it is important to unlearn to learn new and relevant skills. It means that we have to subtract a few beliefs and let go of a few habits we may have learned in the past.
But should you undergo this difficult process of learning, unlearning, and relearning? The answer is a big YES! Because over a period of time you learn a lot of things which become obsolete and outdated with time. Failure to let go of “misbeliefs” held and learned over a period of time, can stop you from progressing.
The same rule applies to investing too. You must subtract a few beliefs (listed below) from your mind to become a successful investor.
The herd mentality
Do investment decisions others make influence your decisions? Well, you are not alone. Many investors are easily swayed by what others do. When everybody around is investing in a particular stock, potential investors tend to do the same. But this strategy may backfire in the long run and result in a loss of your capital too.
Stock markets and casinos are not the same. The stock markets cannot make you wealthy overnight. So it is wrong to have such unrealistic expectations. Even legendary investor, Warren Buffett says, “that earning more than 12 percent in stock is pure dumb luck and you laugh at it, you’re surely inviting trouble for yourself.”
Timing the market
You should never try to time the market. Catching the tops and bottoms is a myth. It can be a challenge to rebalance your portfolio during extreme market volatility. When markets are falling, investors hesitate to buy fearing further decline. Similarly, when prices rise, investors are tempted to hold back out of concern that the rally may have run its course.
Unfortunately, such behavior can affect long-term wealth gain, as you are statistically more likely to miss out on gains while waiting on the sidelines. We all know how the markets rebounded after the 2008 financial crisis. It’s prudent not to time the market but to invest time in the market.
DIY investing is the best
DIY investing is good if you have the time and expertise. But if you have been consistently making losses and your portfolio is going down, it is time to seek expert advice in Stock Market.
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