Great investors develop mental toughness through proper mindset and habits. These are 10 guiding principles to condition the mind for investment success.
1. They Don’t Worry About Issues Outside Their Control
Much of investing and life is outside your control. Wise investors learn to recognize what they can control and what they can’t. The things that can’t be controlled are ignored.
2. They Don’t Obsess Over Volatility
It’s a fact: every day markets go up and down. Trying to obsessively negate volatility usually worsens it. The value of every asset you own, including your own human capital, moves up and down every day. Only you don’t see it, so you normally don’t worry about it. Do the same for random market fluctuations.
3. They Don’t Judge Success by Short-Term Results
Great things take time – going through medical school, becoming a professional athlete, or mastering chess. Investing is no different. The quick wins in investing are usually random and short-lived. Luck rules in the short term, process rules in the long term.
4. They Don’t Blindly Follow Popular Wisdom
Great ideas develop from an independent and thoughtful analysis – and may or may not conform to the crowd. While the crowd is often right, it spectacularly fails when you need it the most. The crowd is not the judge of a good vs. bad decision. Facts and reason are the judge.
5. They Don’t Abandon Their Strategy
All strategies temporarily fail at some time. Even the winningest coaches and athletes have losing seasons and rough periods. Thoughtful investing plans go through the same ups and downs. Investors constantly chase what is working today, only to get in at the peak and bail at the bottom.
6. They Don’t Feel the Market Owes Them Anything
Whatever insight or idea you believe is the next big thing is not as good as you think it is. At best it’s probably mediocre and at worst it’s a disaster. The market does not exist to guarantee a happy retirement. It doesn’t always work out. It doesn’t care how hard you work. Investing success is dependent on accepting that you are entirely responsible for your success or failure.
7. They Don’t Compare Results to Other Investors
There will always be investors richer than you so get over it. When most investors talk about their big winners they are either lying or selectively forgetting about all losers they’ve had. Comparisons to others only inflame ego and emotionally destructive decisions.
8. They Don’t Have Absolute Confidence
Great investors have an understated confidence: confident in their long-term process, humble in their short-term forecasts and market predictions.
9. They Don’t Stress Over Continuously Changing Conditions
As the saying goes, the only constant is change. Great investors embrace unpredictability, amateur investors are paralyzed by it. Success comes not from anticipating change, but adapting to change.
10. They Don’t Live in the Past
Of course the past is obvious in hindsight. Great investors accept their mistakes, omissions, and failures. The past is a sunk cost. All that matters is you learn from the past and then move forward. Focus on today and your plan going forward.