Discipline Helps You While Investing

From a young age, we learn what is right and what is wrong. The forbidden things are often the things we like to try. However, they are wrong for a reason, like for example that it’s too dangerous. Restraining ourselves from things we like but aren’t good for us is a way you develop discipline. Our muscles grow when we exercise frequently which is also the case with discipline when we apply it in our life. If you want to become a successful investor, there is a trade-off. Choosing to dedicate yourself means having less time for other things.

Investing is most of the time about the investments you don’t buy When I started to invest, I was overwhelmed at first. Seeing a lot of opportunities, but never enough money to buy whatever you want. For example, some companies double or triple overnight based on good news and market sentiment. It is tempting as an investor to get on the bandwagon and see how much you can make. However, it’s a risky thing to do because you are likely to not have done your research and therefore aren’t able to estimate the company’s fair value. If the share price goes up after you buy it’s difficult to know when to sell because of your limited knowledge. What would you do if the share price drops after your purchase? You can choose to hold on an investment you are likely not convinced, cut your losses, or don’t invest in these circumstances.

I choose the third option, which is to not invest based on news or noise because it doesn’t suit my investment strategy. I prefer to research my investments to rationalize my decisions before I take the plunge. This could also help you. Once I saw an investment that seemed interesting, but I decided not to invest in it. Two months later, the stock gradually quadrupled because of multiple catalysts. I am happy to have spotted the investment and don’t regret anything because I acted on the available information two months earlier. Having this mindset could also help you deal with hindsight bias. Warren Buffett compares investing with baseball. It is an important lesson as an investor to learn you don’t have to swing at every pitch. He said the following.

The trick in investing is just to sit there and watch pitch after pitch go by and wait for the one right in your sweet spot. And if people are yelling, ‘Swing, you bum!,’ ignore them

Choosing the long-term We have seen over the last few months the stock market is unpredictable, and that’s one of the reasons I focus on the long-term. You are more likely to choose the right investment if you take your time and have patience with your investments. Sometimes an investment goes down because of external factors such as an economic recession. But that doesn’t change anything for you when you invest for the long-term. The following two things are important to keep in mind beforehand as a long-term investor;

• Having realistic expectations: Knowing the fact that most hedge fund managers don’t beat the market is important. Combine this with a lack of time could lead you to invest passively and buy shares of an index fund such as the S&P 500. This is a proven way to increase your wealth over time. I believe it’s also important to keep in mind that some of your long-term investments won’t always go as well as you want. This is part of life and you could see this as part of your learning curve as an investor. Peter Lynch said the following about this.

In this business, if you’re good, you’re right six times out of ten. You’re never going to be right nine times out of ten

• Invest within your circle of competence: Investment experts recommend investing in stocks within your knowledge. It is easier to be up to date with the developments when you are familiar with a sector and/ or a company. Warren Buffett calls this finding your sweet spot. You are also more likely to know if your reasons to invest in certain companies are still valid. This could make the decision to cut your ties easier because you are able to rationalize based on your knowledge why you don’t believe in the long-term potential of an investment.

Takeaway One of the most important things in life is knowing when not to act even when you’re tempted to do so. Restraining yourself leads to strengthening your self-discipline muscles over time. This is also the case while investing because there are opportunities every day. However, to be successful over time, you need a tailored investment strategy to restrain yourself to chase stocks based on news or noise. Having realistic expectations and investing in companies within your competence could be the path for you as a long-term investor. However, keep in mind as with many things in life: discipline determines your success. Below, I have added my article about 5 possible signs of a long-term investment.

Thank you for reading and I wish you a nice day.