The stock market is two-faceted, where both red and green, bear and bull prevail. There are market forces of demand and supply that work in mysterious ways. Many perish in this market, and only a few who learn the ways of the force succeed. I may sound like a Jedi, but that is how the delicate balance of the stock universe is maintained.
The true power of a Jedi trader is not fighting skills or strategies, but control of mind, unbiased attitude, and connection with the force. You can learn the technicals and the fundamentals, but none of it will work if you can’t overcome the mental roadblocks that cloud your judgment.
The market forces don’t treat traders differently. It is traders who learn to succeed by developing the traits needed to thrive in the stock market jungle.
Have Commitment – Investing is not a 9-4 job
The first trait is commitment. When the going gets tough, the tough get going. Humans have survival instincts, but they only work when quitting is not an option. You may try your hands in the stock market, invest in the stock your friend told you, and quit when faced with losses. That is no commitment but a blind date.
Investing is not a 9-4 job. That is the window where you get to execute your decision to buy or sell a stock or an option. So treat it like a window. In soccer, you do workouts, tone your body, even before you enter the field. You practice for months and execute all your training in a 90-minute match. You may lose more before you win. But that win will only come when you look at investing beyond the 9-3 job. Where will this commitment come from?
Own Your Decision – Whether You Buy Or Sell its Your Choice
The commitment will come when you start owning your stock. Investing is not a job but a business. You own your business and accept it’s good and bad. Initially, it demands time, may not give you the expected returns. There will be more efforts and fewer returns. But you need to be optimistic and stay focused. It can also be the other way round, and you may have the beginner’s luck. But don’t get carried away.
Think of buying or selling stock as planning a business. Do you start a business because your friend told you so? Then why buy or sell stocks because your friend told you so.
That is a decision you have to make, and you should be financially and mentally ready for it? Before you jump into buying stocks, do your research.
When Warren Buffett does research, he looks at the quality of the company and then the stock price. While everyone has their way of doing research, here is how you can get started.
First, shortlist stocks you like. The top stocks list can come in handy.
Next, understand the company’s business, the factors that affect it, the opportunities and challenges it faces.
Then look into the fundamentals of the company and its peers, read the management’s interviews.
Finally, choose your game, passive or active, stocks or options, risk-averse or risk-taker.
Remember, choose a game you can play throughout your lifetime. Investing is not a 100-meter race but a pentathlon. Once you are in it, your goal should be to stay in it.
Be the Wolf Not The Sheep – Face Market With Confidence
If you stay in the game, be the wolf, not the sheep. Once you start owning your stock decisions, the market noise should not bother you. Markets have a split personality. It moves on sentiment, and you cannot tell which personality (bull or bear/greed or fear) will overpower the other.
Every morning your screen is populated with updates and opinions, both positive and negative. Don’t let that sway your decision and create self-doubt.
First, clear your mind, and look at every news piece in an unbiased manner.
Second, listen to both sides of the argument like a courtroom judge.
Third, compare their arguments with your study and make a rational choice.
And most important, don’t be afraid to make mistakes. Even the brightest investing minds like Warren Buffett and George Soros have their fair share of mistakes. They don’t let those mistakes push them away from their commitment to invest.
Don’t Let Emotions Be Your Guide
The one who learns to control emotions and become neutral achieves salvation. It is easier said than done. How can you stay detached and also committed to investing? This is where you need balance. Drifting to any one side leads to mistakes.
Buffett made a mistake buying Dexter Shoes in 1993 with 25,203 Berkshire Hathaway shares, which are now worth over US$8.7 billion. His mistake was he got too attached to it even though the company showed red flags. After over 20 years, he finally closed down the business. But this mistake and media criticism did not lower his confidence in his decisions.
Instead, he laughed off Dexter Shoes saying, “As a financial disaster, this one deserves a spot in the Guinness Book of World Records.” Buffett never forgets his mistakes. Instead, he takes it as a valuable lesson.
Never Stop Learning – Know What Not To Do
Another key characteristic of a successful investor is humility. For the investor knows, there are no mistakes, only knowledge. They know they are in a game of risk, where one wins and another loses. When in a game, maintain the sportsman spirit.
You lose a game because something went off balance. You need to work on your skill or strategy. Never stop learning. Even at age 90, Buffett read books, annual reports, and interviews. He tries to learn how the business world has evolved.
When empowered with knowledge, you gain confidence in your decisions and can own them. When you know what you are doing, you start liking it. Then investing is not work but a habit, which helps you stay committed.
Success comes to those who dare and act
Every trait, every habit is interlinked. Even if you develop one trait with conscious effort, other traits will come to you naturally. And the one trait that every investor (even the aggressive ones) has is “Patience.” Time heals everything, even the stock market.
As Charlie Munger said, “The big money is not in the buying and the selling…..but in the waiting.”