The Investor's Mountain Experience

Having the right investor mindset would determine how well your investments turn out

A couple of weeks ago, a friend and I decided to do something spontaneous. Trust me when I say, we have explored fine things of life, from early morning car races to spontaneous eating of fish and chips.

This time around, we chose to visit a far away mountain. To gear ourselves up, we bought rock climbing shoes, water bottles, and back packs and had told our families we would be exploring the mountain and would be back the same day. One thing that caught my friend’s attention were the back packs. They had that easy to carry feel, with lots of space inside. They also had this subtle ornamental look that made it fit for display in ones living room. He knew that at the end of this climbing journey, he would be investing in the company that made the bags. He was certain and had made up his mind to be an investor in the company.

This is just like the stock market. Buying stocks means owning a piece of the company and making an equity investment. When you purchase a stock, you are buying a part of the company, and as a part owner, you are entitled to a share of the profits and assets of that business.

As we journeyed towards the mountain, he spoke of his interest in buying shares in the company and almost immediately, I had to question his investor mindset. According to the popular American investor, Warren Buffet, until you can manage your mind, do not expect to manage money. Without the right mindset it would be difficult to become a successful investor.

It may seem like an obvious thing to do your homework before plunging down your hard-earned cash on a company’s stock, but the truth is many people don’t. Many carry on an act of carefree investing, hence reaching an abrupt end.

There is a popular saying that not all that glitters is gold, meaning that not everything that looks precious or true turns out to be so. This can apply to people, places, and even stocks that look good and promise to be more than they really are, so I asked him a few questions. What does the company really do? Are they profitable? What is the company’s earning history? Who are the company’s competitors, are there any red flags on the company’s integrity? Is the company sustainable? So these were a few of the questions I asked and he stared at me blankly. Nobody really wants to fail, and I can almost guarantee that my dear friend didn’t want to fail either. One thing I told him was that an investor has to develop an investment mindset if he is serious about investing, and how does one develop that?

Over time, an investment in a good company yields good results, however, one has to develop the appetite to digest short term market volatility which could come as a gain or a loss, but ultimately, he must carry on with a winning mindset. Market volatility is the pace at which prices of a stock increases or decreases and is the fluctuating movement upwards or downwards of prices from its expectation.

As we journeyed to the top of the mountain, he was able to understand that it didn’t really matter the financial trader or successful entrepreneur he listened to, they all say the same thing: that your mindset contributes to about 80% of your success and the remaining 20% is based on strategy. That saying propelled us to get to the very top of the mountain and what a sight it was! Such beauty. You could literally see the whole of the city from that height.

As we looked around, we took a few pictures and knew it was time to head back down. I had to reiterate all I had told my friend about investing. The primary goal of any investor with the right mindset is to preserve capital and prevent loss of funds. Not every investment is worth your money, do your homework, research about the investment you are aiming at, and lastly remember that the market is volatile. It is important not to let market volatility affect your emotions. Strategies like diversification and appropriate asset allocation can take emotion out of investing.