The Correct Attitude For Successful Investment
When it comes to making investments wisely, few things count as much as having the right attitude. What does attitude have to do with it? Well, it's simple: investments need to be based solely on information and particular reasons that relate strictly to the investment itself and not anything else. The worst thing an investor can do is end up making decisions based on extraneous affairs that are irrelevant to the investment. That's where the saying "Plan the trade, and trade the plan" comes from. This article details some points which may assist with this.
1. Never invest money you need to use for your living expenses. Even if you don't need this money this month, next month, but you know you'll need it in 3 months, don't invest it. If you put money in any investment market that you need to pay for your living expenses, at some stage you will need to make a decision about that investment, due to your living expense commitments.
For example, Lets say you need that money in 3 months to pay a mortgage repayment. Your investment may temporarily drop on the very week you need the money. In this situation, the correct decision, based on your strategy, could be to hold for another week. But because you have the mortgage, you make the decision to close the investment. This decision was made on information which was irrelevant to the investment and ended up ruining the trade and causing a loss. This issue would never exist if you only invested money you didn't need.
2. When you invest your money, it may help you to imagine that that money is completely lost as soon as you invest it. Quite often investments look like they are going bad before they turn around. It just happens as part of the typical fluctuations of the investment market. Many a good investment has been turned into a bad one by people (me included) who get scared and close a trade, instead of giving it the time to complete successfully.
If you convince yourself the money is gone when you invest it, its much easier to avoid getting the jitters during these times. (And let me tell you, there is nothing worse than closing a trade early for a loss, only to watch it turn around and become successful, if only you had let it run its course.)
3. Any and every investor needs to accept that failed trades are a basic fact of life. Everybody will make a certain amount of trades that run into losses. The important part here is the attitude that you adopt in the face of such losses: being a poor, vision-less loser in such events will prevent you from ever becoming a successful investor over the long haul. Following are two exemplary ways to contemplate an unsuccessful trade.
3a). Instead of looking at your portfolio as a series of individual investments, think of them as a group or a totality. Imagine that based on a certain investment strategy you are running, four out of every five investments runs a profit (which alternatively means that one out of five is a loss). Instead of considering the losing investment as independent of the other four, rack all five up together in terms of net profit and then divide that by five, not four. The answer, which is your profit per trade, must reflect on all trades in the strategy and in that sense, 20% of the final net profit is courtesy of the failed trade. Remember: if it's a necessary part of the overall strategy, it is not strictly a loss.
The end result of this kind of attitude is that you don't let the fear of tiny mistakes or failures keep you from accomplishing larger goals.
3b). Consider the losses you make as educational expenses. Most folks dedicated to the industry of finance have dedicated many years and thousands of dollars on educating themselves on the matter at prestigious universities, getting a grip on the trade. The equivalent for somebody striking up in the field from zero is a series of unsuccessful trades. This implies though you actually learn from them. This must be done professionally and objectively, without emotions, otherwise you will never make the cut and will miss out on lucrative long term gains through investments.
Investment work and the markets are known for being able to bring out people's best and worst features. Thus, controlling one's emotional and irrational reactions is fundamental so that they don't cloud decisions. As the saying goes: "Plan the trade, and trade the plan.
Article Source: FxTradingStock.com
About the Author
Damian Papworth makes investments for his lifestyle and his family. Not too long ago he researched baby high chairs. He created a website with his findings on high chairs for babies.
by: Damian Papworth
Total views: 38
Word Count: 781
Date: Sun, 6 Jun 2010
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