For ordinary individual investors, when the market reverses from bullish to bearish, their mood is like sitting on a roller coaster. Usually when the bull wave of the market enters the final stages, they start to notice and buy. In general, most of the first trades give them a certain amount of profit. Those profits are like an addiction that binds and makes them believe they will get rich quickly. Many people only focus on speculation, trading several times a day instead of investing.
Investors move on to new opportunities with higher risk, some even going so far as to become a day trader. They attend conferences and spend a lot of money buying advice on software that can tell them when to buy and when to sell.
And when the market bubble burst. Due to their inexperience with market cycles, these investors froze with fear. Watching their investments depreciate without stopping and paper profits evaporate in the blink of an eye, they never took any precautions, nor did they know how to deal with the rapid collapse of the company. market, do not know what to do but give up. After taking a lifelong vow not to stick to the market again, they openly curse the founders, the regulators, the government, or anyone else they can think of but themselves. .
Meanwhile, professional investors and experienced individual investors play a completely different game. They are like lone riders, always challenged to act differently from everyone else and at times resist the sweet words that lure them into joining the frenzy of moths. financial cliff head. These investors buy when the bear market wave is coming to an end as these assets are undervalued and the bulls begin. Their task at the moment is both difficult and lonely, because then the financial media are always full of bad news, while most people will believe that the market will never recover. Others fear the market like tigers and have absolutely no interest in it. To them, anyone who dives headfirst into the market right now is a misguided fool.
However, it is a good time to buy.
Normally, the market will take a long time to transition from the overvalued phase to the undervalued phase. Professionals and smart individual investors will start buying at the bottom of the cycle and continue buying as the market gradually turns to an uptrend. When the market returned to normal, things started to revalue. They sit still and watch their fortunes expand thanks to profits.
For the inexperienced investor, who almost lost everything in the final stages of the process, they learned nothing from their mistakes. Still, there are a few who see the lesson and act differently the next time, allowing them to join the ranks of successful investors.
Everything seems so simple when you understand how that process happens. Start buying when the down wave is coming to an end and keep buying when the market goes up. When the market is overvalued, start selling as others buy in with only a small exposure to the market as the bull market track is coming to an end.
However, doing that is really not that simple. The difficulty lies not in the logic of the matter, but in our minds. And below are 7 investment-specific problems that everyone should avoid.
There is a widespread belief in the market that we can predict the future, or at least there are a few "Living Saints" capable of doing this and they can speak and teach them. I have that skill. The truth is, the future is something that is almost impossible to predict on a regular and precise basis.
In all areas of life, experts overestimate their predictive power. Nowhere, however, is the task of forecasting more difficult, and experts predict failures more often than in financial markets.
To be successful, we need a different strategy. Forget about predicting and create a strategy that will work even when we don't predict how things will turn out. In fact, the law of buying and selling that we just talked about is incredibly obvious: Buy when it's cheap and sell when it's high.
In the investment game, perfectionists are always the ones having the hardest time. Because investing means managing uncertainty, just as you don't try to find certainty that lies within calculus. These investors always hold back from investing until the perfect moment they desire. They want when the price has bottomed. This is impossible except for two types of people: (1) the extremely lucky and (2) the liars.
To be successful, we must accept and learn to manage uncertainty. Even though we know the market could drop even lower before rising again, we still have to downgrade our buy decision, because we don't know when the market bottomed out, except in hindsight.
The best investment decisions are often the hardest ones.
This is closely related to “trying to be perfect”. However, it is not only perfectionists who suffer from this disease. No one in this world likes to make mistakes. However, since it is impossible to continuously predict market performance on a regular basis, the best we can do is to identify opportunities and manage uncertainty, which can considered an integral part of investment activities.
We will then build our direction through a portfolio, which helps us further strengthen our expectations. At the same time, sell all your disappointing investments. More importantly, maintain a safe margin for investment by buying good projects cheap, combined with owning a solid source of money and careful risk management.
Precisely because we need to act in a way that almost goes against the crowd around us, investing can be said to be a very lonely profession. For those who always need the support of friends and colleagues in all activities of life, they will find investing is a very difficult job, unless they can gather around themselves. who understands the urgent need to act against media coverage and public opinion.
At the most critical moments, such as market turning points, operating independently can be considered an extremely difficult task. It is for this reason that many great investors have forged exceptionally strong and disciplined personalities.
For some reason, most people seem to consider investing a very easy thing to do. A lot of research on overconfidence shows that the less knowledgeable we are about something, the more likely we are to overestimate our abilities.
The truth is, investing is a very difficult business. It requires education, experience, diligence, and patience.
Investment means that we will not immediately get the reward.
The great investors have always been the slow to get rich. They themselves always have to struggle not to be tempted by get-rich-quick schemes. They understand that something too good is often not real. With each passing year, life seems to move faster, which is why we pay and want to see results immediately. Investment is not like that.
Essentially, investing means taking on uncertainty by using part of your savings to finance a business. It can take years to see results. Investing in quality ideas and letting our capital grow with them is the only way to invest and there is no other alternative.
The rate of return is fertile ground for the most unrealistic expectations of novice investors. That is also the reason why they are easily deceived by advertising systems that promise to bring unimaginable profits.
Warren Buffett is the greatest investor of our time and no one can argue with that. Between 1965 and 2011, his reported returns were around 20%. Therefore, any investment that yields a rate of return more than half his rate of return can be considered good. In the past, he has shied away from crazy expectations during the bursts of tech and internet bubbles. Many people at that time mocked him for being too old to do anything anymore. But, in the end, it is they who are the fools.
The key to investment success is to buy while the price is low. However, doing that is not easy. 7 myths that we need to overcome to be successful in investing are:
To think someone can predict the market
Trying to be perfect
Fear of making mistakes
Inability to operate independently
Have unrealistic expectations
P/s: Part of the article is inspired by the author: Colin Nicholson
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