“Master yourself and your investments will flourish”
Here is an article written by a good friend of mine who has become financially free by trading in the stock market. He retired from his sales job at IBM about 10 years ago and never looked back after figuring out how to consistently profit in the stock market. I think you will see that what he has to say is applicable to all investment types. Hope you like it as much as I did:
There is an old adage that states “to be truly financially successful you need to have the combination of the right opportunity with the right you”. Let’s break this down a bit, OK. Another way of saying this is you need to have the correct “How-to-do” it knowledge AND have the essential “How-to-think” mental ability (call this the right “Mindset”).
The big mistake that most people make is putting all their focus on the “How-to-do”. They’ll spend thousands to attend investment seminars, read countless books, watch talking heads on CNBC, all with the belief that they can simply learn that one little secret contained in “how-to-do” that will bring them the financial success they seek. While having the proper “How-to-do” knowledge is very important, the reality is that 95% of successful investing is “How-to-Think”, and only about 5% of this is “How-to-do”. This may come as a shock to a lot of people.
While I make my living in the stock market, I’ve watched and spoken with enough people in other fields such that I firmly believe that those “how-to-do” and “how-to-think” ratios are the same whether you’re investing in real estate, business, or the stock market. 95% is “how-to-think”; only 5% is “how-to-do”. Yet, nearly everyone puts 100% focus on the 5%. They laser focus on the “how-to-do”. Then, if that particular “how-to-do” investment strategy ends up not working, they go looking for the next holy grail methodology/investment strategy; again focusing 100% on that “how-to-do”. This completely ignores the fact that the real issue may not necessarily be the “How-to-do” they are following, but rather with themselves. That’s a pretty tough pill for most people to swallow.
OK, so how can you figure out if your lack of financial results is dependent on the “How-to-do” or on you. The simple answer is to make sure you are following a strict set of rules specific to the methodology/investment strategy you are using, so that you can be consistent in your actions. You literally want to remove yourself from the equation as much as possible. That sounds pretty straight-forward…find a set of rules that tell you “what to invest in”, “when to buy it”, and “when to sell it”. Then, prove to yourself that those rules do in fact work, and then follow them. This works for the stock market; it works for real estate; heck, this is how franchises are operated. How hard can it be?
Well, there is one little dynamic that trips up nearly everybody as they are learning. That little gotcha is called emotions. It’s often said that markets (stock or real estate) are driven by hope, greed, & fear. I’m of the opinion that there is only one emotion; fear. It comes in four flavors - - fear of losing money; fear of being wrong; fear of missing out on an opportunity; fear of leaving money on the table. Think back to any investing mistake that you’ve made in the past. You probably can identify one of those fears as being the culprit.
So how does one avoid those four flavors of fear? Some people think that by outsourcing the decision-making to someone else (like a mutual fund), then the problem goes away. To me, that’s very, very risky. Yet, that’s how the financial services industry stays in business – they tell you that you can’t do it without their help. You drink their Kool-Aid, and they make a handsome living.
Alternatively, there are people who sign up for various advisory services. They pay a few bucks every month and the “expert” advises them on what to do. They get to decide if they’ll follow the advice or not. The decision to take action or not is often a decision driven by emotions. People get upset when they hear that, however, if they knew how to find their own opportunities, they would not need the advisory service.
There is an example of that every day on TV. Bazillions of people watch Jim Cramer on CNBC’s “Mad Money”; they sell when he says, “sell, sell, sell”; they buy when he says “ buy, buy, buy”. I’m not knocking Cramer; he is an unmatched wealth of knowledge. He has written some great books. However, what’s going to happen to half of America when he’s no longer sharing opinions. They will have no idea whether they should buy, buy, buy or sell, sell, sell. What’s going to happen if your advisory service stops advising or if the method hits a rough patch? Is the rough patch due to the method….or is it due to your emotions when you’re trying to make the decision to follow the advice or not? If you don’t know how to do it yourself, how will you know where the flaw is?
It’s your money. Nobody cares more about your money than you do.
Bottom line is to find a set of investment rules that you believe works. Prove to yourself that they work. Then put it to work. Follow the rules and become very aware of your emotions. If your results aren’t there, and you’re sticking to the rules, then the problem is with your rules. However, if you don’t follow the rules because of your emotions, then it is impossible to determine if the problem is “your rules” or “your emotions”. As humans, we can never 100% control our emotions, but we can develop discipline on the way we think so that we can mitigate how our emotions affect the way we handle our investments. Let’s “get out of our own way” so we can all achieve the investment results we desire.
Chris Hanson manages his own portfolio and teaches people how to trade & invest in the stock market. Info can be found at www.ProfitsOnWallStreet.com. With Doug Carver, he co-hosts a monthly CashFlow game in Glendale, California. Doug runs www.TurnkeyREOs.com, a service to acquire rehabbed, rented REO properties for around $5k.