Your Mindset Is Your Winning Ticket
You are the decision maker for your portfolio, and you are responsible for gains or losses in your portfolio. Your mindset puts you on the right radar to get the very best out of the stocks
One difference I see in the mindset of people who are successful and those who simply dream without progress is where they invest their time and money. The most successful investors use psychology as a tool to enhance returns.
There is a popular saying in the investment world, that the market is driven by two emotions - fear and greed, and that your mindset at any given time ushers you into your final investment destination. It is your ticket to the investment world and it can determine the outcome of your decisions and general investment experience.
Succumbing to these emotions can have a detrimental effect on an investor’s portfolio and the stock market at large. Investors get caught up in greed just like most people desire to amass huge stacks of wealth in record time. The get-rich-quick mentality makes it hard to maintain rational thoughts and to keep to a strict investment plan, as false and enticing hopes are thrown to attract the weak investor.
It is similar with fear - a very strong anticipation of danger in the market. When stocks suffer large losses for a sustained period, the overall market can become more fearful of sustaining further losses and so investors tend to tread with care and caution.
Fear and greed relate to the volatility present in the stock market. For example, when investors are out of their comfort zone due to losses or market instability, they become vulnerable to shaky emotions, often resulting in very costly mistakes.
Below are a few tips to help you begin thinking like a high-flying investment guru. These tips would help you improve your investor mindset while sharpening your analytical and decision-making process.
Firstly, panic is an emotion that causes us to make irrational decisions. For example, selling a stock when it should be held, or buying them when it should be sold. Our basic instinct to panic cannot be totally eliminated, so it is key to control it. Rather than letting panic eat you away, use it to your advantage by conducting more research and getting better information about what is going on in the market before acting on it. Anyone can use this strategy to become a better investor.
A second tip is to know when to go with the flow. If a stock is falling, it is better to wait until it levels off before jumping in or acting on such stock. So how can you figure out whether to go with the flow or not? The short answer is to do your homework and confirm the stocks position. Maybe you should research to find out if there is a reason why a company's stock is displeasing and unattractive in the market. More often than not, a slump in a stock's price is probably justified by some underlying fundamental reason.
Thirdly, go for it! Patience and thorough analysis is important, but once the analytical process is complete, go for it! Inactivity or paralysis in the market is just as deadly as acting in haste. Don’t keep studying and watching the market endlessly, act, go for it. Know when to step in with strategy.
Finally, you are the final decision maker for your portfolio, and you are responsible for gains or losses in your portfolio. Your positive mindset puts you on the right track to get the very best out of the stocks you have placed stakes on. Sticking to sound investment decisions while controlling your emotions, whether it be greed, fear or uncertainty is crucial to building a successful and fail proof portfolio.