Investing should always be viewed as a long-term endeavour. And that means being in the market through its inevitable ups and downs.
Given the unpredictable nature of the sharemarket and its ability to incite fear in otherwise rational people at the worst times, it’s true that without a few key attributes, it’s hard to be a successful investor for long.
To find success in the sharemarket, you must have:
1. A long time frame.
2. A steady temperament.
3. Liquidity.
4. The desire to keep learning.
Especially during volatile markets, it pays (literally and figuratively) to remember these. Write them down and tape the list to your computer monitor or tablet.
1. A long Timeframe
In other words, don’t invest in the sharemarket with the money you need for the mortgage next month, your child’s tuition in a few years, or a holiday to USA in 2019. If you do, you’re just inviting stress – and unavoidable losses – if shares go down.
And when markets decline, our stress levels rise, which only compounds the potential heartache. The stress triggers our instinctive “fight or flight” reaction, and our time horizon shrinks.
We get so wrapped up in the moment that we forget it’s the distant future that matters when it comes to our investments. You can lessen the risk of falling prey to these tendencies if you truly only invest in the stock market with money you won’t need for seven years or even longer.
2. A Steady Temperament
Besides an honest long-term commitment , successful investing also requires the resolve and calm to stick with your convictions.
Warren Buffett has said he believes temperament is the single most important factor in investing success, and to that end, he has spent his lifetime mastering the resolve to buy shares when others are fearfully selling because the outlook looks dark.
Common sense tells us this is both logical and brilliant: When the economic picture looks bleak, share prices are discounted, but eventually the outlook will brighten, and prices will rise. So of course you want to buy when shares are down – and yet so many investors only buy when the outlook is bright and prices are up.
3. Liquidity
Liquidity is even more important than temperament – you can be the calmest investor in the world, but if you run out of liquid assets, you may have no choice but to sell at the worst time.
To maintain liquidity, you need to hold cash, maintain healthy buying power, and have a portfolio that remains flexible even when the market are under great stress.
4. Keep on learning
This leads to the final attribute an investor needs a willingness to keep learning in order to improve.
Over your investing lifetime, you’ll make plenty of mistakes – some small, some large. The key is not to make the same mistake twice. Achieve that and it will help you in what should be a lifelong goal to become a better investor. In the end, investing is a lifelong pursuit. Your goal should be to earn consistent returns over the years.
Summary
By focusing on few key attributes to guide your portfolio management, it will allow you stay calm and make rational decisions while others around you lose their proverbial heads in emotional rushes of joy and fear.
Trinity Financial Management can help you improve your financial affairs, so can save time, save money and achieve what is important to you. Contact Frank on frank@trinityfinancial.ie to find out more.
This article is provided on the strict understanding that it is for the reader’s general consideration only. Accordingly, no action must be taken or refrained from based on its contests alone.
