The basic premise behind successful investing is to buy an asset at a low price and sell it at a higher price. Simple and straightforward. But doing that often requires discernment, patience, and discipline – which can require near superhuman strength to do. It is not easy!
This is because of the way we think and feel. For instance, we love a good sale at the supermarket, but we get fearful and anxious when the stock market goes on sale. Both are sales, but our response is completely different.
Illusory & Emotional Effects
Mentally, we are influenced by various illusions. With the illusion of certainty, we are swayed to believe economic and market forecasts, even when history shows they are often incorrect and misleading.
We are also influenced by the illusion of control. Investors often tinker and adjust their portfolios in an attempt to control their investment destiny. But history shows that the more often investors trade, the worse they tend to do.
And it doesn’t help that emotions are triggered to respond to stimulus before conscious thought. In fact, our emotions are so strong they can even overrule our rational thoughts. It is easier to do something that feels right than something that we know is right.
Investing Wisely
Some of the best investment advice I have heard came from the late Charlie Munger. It runs counter to our illusions and how we feel about investing, but that doesn’t mean it isn’t correct. He said, “The big money is not in the buying and the selling, but in the waiting.”
I have found that investing can become an easier (and more successful) endeavor by following these three steps:
Recognize that we are hardwired to make poor decisions
Exercise patience, and keep exercising it
Counsel with us about your concerns, thoughts and feelings. That is what we are here for!
Wishing you a happy and prosperous 2025!
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