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There is some new positive news (newfound stability in UK politics?), and all your rational caution as an investor is forgotten in seconds. We all make such mistakes. They are “unforced errors” in tennis parlance.
Tennis Lessons
If you want to be a Wimbledon winner you have to minimise unforced errors. You might already be massively skilled, but it counts for little if you are prone to waves of impulsive behaviour.
Whether you want to be at your best as a tennis player or investor, or indeed your own area of expertise, you must minimise such moments of impulsiveness.
For example, a dentist can’t impulsively remove one of your teeth!
High achievers need skill, discipline, and even luck – pro’s never underestimate the need for a little luck, though the precise mix varies between professions and sports.
For example, a dentist shouldn’t need luck, but a weatherman does. A tennis player will need more discipline than a footballer, and a footballer can benefit more from luck.
You also need to know your limits. Do you really have some special insight?
Knowledge Or Distraction?
A lot of people confuse familiarity with knowledge, and knowledge with understanding. You can become familiar with investing generally by reading the weekend press. But this is not knowledge – it is more likely a distraction.
We believe we have understanding when we merely have knowledge.
For example, seeking out the top 10 holdings of any fund before you buy it gives you knowledge. But this tells you nothing about your actual likelihood of success.
You need to figure out not just the things you understand, but also those you can control. These are the ones most likely to increase your likelihood of success?
As an investor, you cannot control events, but you can control how you respond to them e.g. not impulsively! You should have a process for buying investments (your attack), and another for selling (your defence).
As an investor, that buying process can be very straightforward, such as using Dynamic Fund Ratings. Add discipline on top of your process, and you have the difference between success and failure. A little luck would be the icing on the cake, but that is outside your control.
Making Big Hits
One of the greatest baseball hitters of all time, Ted Williams, wrote a book called The Science Of Hitting.
He identified that when people make bad decisions, they disregard what they know, ignore coaches, and become impulsive. They stop thinking clearly – process and discipline go out the window.
Ted Williams understood that it is the process by which you make decisions which are key – that process is at the heart of your skill. It moves the odds of success in your favour. A good process, a proven process, increases the odds of much better outcomes.
A key part of that success is understanding the game you are in, knowing when you have an edge, and also knowing when you haven’t got an edge.
When you are in the game of investing, you are pitching yourself against some of the smartest and largest brains (and computers) in the world, investing many billions all around the clock.
You can’t play the big boys at their game. You will fail.
But you can play the game your way, in a way in which they can’t, and where the odds are stacked in your favour. Dynamic & Vintage Ratings could offer you just that edge.
And keep any tendency to impulsiveness in a box.
Similarly our stop-loss tool ensures you are not seduced by “the market always recovers” approach of lazy wealth managers.