Whether Stocks Will Fall or Soar and What You Should Do About It

Whether Stocks Will Fall or Soar and What You Should Do About It

This year has been a difficult time for many stock market investors.

Shares dived the first six months of the year, and few of them have escaped the plunge.

In fact, the major U.S. stock index S&P 500 has had its worst first six months in half a century, according to an article in the WSJ.

Since then some stocks have made a bit of a rebound, but the nervousness still lingers.

The question a lot of people are asking right now is:

What now? Is the market going to drop again? Or is it going to continue up?

The other question behind this question is: shall I buy or sell now?

Warren Buffett addressed this very clearly at his company Berkshire Hathaway’s annual meeting in May 2022:

“We don’t have the faintest idea what the market is going to do on Monday.”

Well, the major indices did drop by quite a lot that following Monday after the Berkshire Hathaway meeting.

Warren Buffett has been phenomenal at “timing” his investments. How is that possible? Especially when he says he doesn’t know how to time?

Well, he doesn’t time. He does something much simpler.

He invests without taking into account the macroeconomic trends and stock market forecasts. He focuses exclusively on the company in front of him.

I call it investing with blinders on. Like the horse on the road, you can’t let yourself get scared by a passing truck or noise from an airplane overhead.

You need to focus on the road and take one good step after another. That’s your job.

Here are three steps you can take to be a good investor in any market – bull or bear.

1. Focus on the Company and Its Products

First and foremost, you need to find good companies that you think will sell more in ten years.

As Warren Buffett says, you should only buy shares in the company if you’d be willing to buy the entire company and wait ten years without selling any stocks. This makes you think twice, doesn’t it.

Of course, that doesn’t mean you have to have billions in your trading account to buy the whole thing. It just means that you need to be ready to evaluate the company as a whole and equip yourself with patience.

If it’s a good company, that will show over time on the stock price – even though there may be short-term drops.

This, of course, depends on you not buying at inflated bubble prices. More about that in point 3.

2. Take the Company Through a Checklist

How do you know if the company has a better future in ten years?

You will need to take the company through a checklist.

I’ve made my own checklist, which you can download in summary form here.

The most important thing is that you assess whether you understand the product, whether you trust the management, whether the company’s finances are sound – growth, profits, sound cash flow and low debt – and whether they have competitive advantages that make customers stick to their products.

You can read more about how to take the company through such a checklist in my e-book Free Yourself here

3. Buy Shares When Cheap

Even the best company can prove to be a bad investment if you buy shares when the company is overvalued on the market.

For example, if you had bought Microsoft during the dotcom bubble in 2000, you would’ve had to wait 16 years before the stock was worth the same amount again.

How do you calculate what a company is worth?

There are several methods. My favorite is Warren Buffett’s owner earnings, which you can also learn more about in my e-book Free Yourself.

What I Do

By the way, in the picture above, I am on my way from Portugal to Denmark, where I opened my investment company, Grünbaum Value Invest, at the end of June.

Many observers have complimented me on “being good at timing the market”.

As you probably guessed by now, I’m not timing the market.

I’m only looking at whether there are opportunities in the market that I’m ready to act on.

And yes, great companies are now trading at reasonable stock prices. It’s a good time to get in, if you ask me. But you have to watch your steps carefully.

Learn how to identify great opportunities in my e-book Free Yourself right here

The Top 20 Online Sites For Stock Market Investors

The Top 20 Online Sites For Stock Market Investors

There are a lot of tools available for you as an investor, but it’s easy to get lost on the internet.

This list will help you cut to the chase and find the best sites quicker. 

Here are the 20 best online tools and websites for value investors: 

1. The Company’s Own Investor Relations Site

The first source of information should be the original source, and by that I mean the annual report, quarterly statements, and other information from the company itself.

There should be a link to the subsite for investor relations on the home page.

If you still can’t find it, just google the company’s name + investor relations. 

2. Google 

You should google the company to see what comes up.

There could be awful – but truthful – reports from short sellers (people betting on the stock falling), big insider selling, or some lawsuit that hasn’t been settled yet.

Always, always google the company you are researching. 

3. News Media  

Take a look at the headlines on the major news sites every day.

I check:

Make it a part of your daily routine to check the websites. You don’t have to read a lot of articles from start to finish – this is about getting the big picture. 

4. Reuters 

Reuters.com contains a stock site that can be really useful to get an overview of a company’s development. 

You can use the search function to find the company.

On the “profile” page of the company, you can see things like how many shares there are. You’ll need that for several calculations when you want to figure out what price you would want to pay per share. 

5. Bloomberg

Bloomberg.com is similar to Reuters – they both sell data to the financial sector. 

Bloomberg has a more aggressive paywall on their website though, but you can still use it to look up the numbers of shares outstanding.

6. Insider Monkey 

InsiderMonkey.com is useful for checking if insiders are dumping the stock.

You don’t want to touch something that the insiders are doing a fire sale of.

History has shown us that insiders often try to unload the stock they own before it’s obvious to the public that a company is going bankrupt. 

7. Gurufocus

Gurufocus.com showsou what the big value investors invest in. 

You can see the portfolio and their latest trades. Just be aware that the investors only have to report their US investments every quarter, so the information is never going to be completely updated. 

8. Dataroma

Dataroma.com is a more simple version of a value investor tracker.

It includes different investors from Gurufocus, so it’s a nice addition – Li Lu is on Dataroma, but not on Gurufocus. Who wants to miss out on what Li Lu is doing? Charlie Munger trained him, and some people speculate whether he has a future role to play in Berkshire Hathaway.  

Whalewisdom       

Whalewisdom also tracks the big value investors. I like their heatmap.

10. Seeking Alpha 

On Seekingalpha.com you can find a lot of investors’ analysis and stock ideas.

They have a morning briefing podcast called Wall Street Breakfast. You can find Seeking Alpha’s podcasts here.

11. Investopedia

Investopedia.com is for investors what Wikipedia is for normal people.

If you find something in an annual report that you don’t understand, try looking it up on Investopedia before you panic.

12. The Motley Fool

The Motley Fool, also called Fool.com, is run by two brothers, and it helps you invest through blog posts, podcasts, videos and so on.

It’s possible to receive stock recommendations if you sign up for the paid version.

13. Morningstar 

I use Morningstar.com for researching ETF and other funds. It’s an easy way to look up their performance and costs.

You can also enter and track your portfolio on Morningstar. 

14. Yahoo Finance 

You can use Yahoo Finance for a lot of stuff, like setting up a stock screener, entering your portfolio, creating a stock alarm, and many other things.

15. Trading View 

Tradingview.com is great for charting.

It’s got plenty of other functions like a stock screener. If you’re into Bitcoin and other cryptos, you can chart them here too.  

16. Finviz 

On Finviz.com you can chart, build portfolio and stock screeners, get an overview of the news, backtest your latest trading idea, and much more.

17. Market Screener 

Marketscreener.com lets you chart, build a portfolio, a screener – and many of the other features that the two previous financial sites also offer.

You’ll have to test them and see which one suits you the best.

18. Simply Wall Street 

Simply Wall Street is a value investor site that evaluates investments for you.

I get a little confused about the warning signs that they show, so I prefer to do my own analysis, but I see no reason why you can’t get inspired by Simply Wall Street – as long as you go to the original source (the company’s report) and do your own analysis as well. 

19. SEC Edgar 

The Securities and Exchange Commission’s website Sec.gov contains a lot of information… if you have the patience for the not-so-user-friendly system.

The funds trades are there – which means you can find all the big investors investments and trades.

Be careful though – you might click on something that fills your screen with code language or html.

The SEC communicates in a semi-cryptic language – here are some of the most important form codes to remember:

  • 13F : Funds reports of their investments
  • 10-k : Annual report
  • 10-q : Quarterly statement
  • 4 : Changes in insiders’ ownership

20. Money and Freedom 

You’re here, aren’t you? It’s worthwhile following this blog for the weekly posts and lists. 

You’ll automatically be signed up for the weekly investment tips if you download the e-book. Which brings me to…

Don’t forget to read my free e-book that explains my whole investing process – including my favorite way to calculate what a company is worth. You can get it here.

Four Reasons Stocks Dive

Four Reasons Stocks Dive

The stock market has been very choppy lately.

Stocks fall, stocks rise. Some companies have lost a lot of market value and others have regained it.

Sometimes there is a logical reason for the plunge, and other times it’s not entirely clear why a business plummets.

In this blog post, I will look at the four typical reasons why shares take a nosedive:

1. Company-specific News

Sometimes shares in a company fall because something specific happens to that particular company.

Here are some examples:

  • Maybe a bad management decision was revealed.
  • Or the need for a new CEO. The stock market gets nervous about any uncertainty.
  • Maybe there is food poisoning at a restaurant (e.g. Chipotle around 2017).
  • Or doubt about whether the next launch will flop or fly (hello Apple)
  • It could be sharp and specific criticism, like when Starbucks was accused of racially profiling costumers after calling the police on two Black men who hadn’t purchased anything as they were waiting for a friend (in 2018).
  • Or it could be criticism of a chain when it boycotts and withdraws from the Russian market after the invasion of Ukraine (several companies recently).

The company-specific declines occur in both the bear market and the bull market.

If you want to look for value investments in times when the market is generally highly priced, you can look for companies that are hit by specific bad news that applies only to them. They are often quite obvious in the “pink” pages of the news.

However, it’s important that you evaluate how real the “threat” is.

From time to time, the market overreacts to something that isn’t really that serious. This gives us opportunities as investors.

Here’s the magic question: is it something that will permanently damage their business? Or can they fix it again?

Of course, you should stay away if the business is permanently affected.

2. Sector-specific News

This is when investors get nervous about an entire industry or group of stocks because something specific has happened to a company in the industry or a threat has arisen for the entire industry.

Examples of this can be:

  • There’s a major oil spill, and all oil stocks fall.
  • The whole airline industry plunging after COVID-19 because flying was halted.
  • Maybe there is uncertainty about what type of energy a new US government will support in an election, and shares in a particular energy sector will fall.

Just like when the shares of a specific company fall because of an event, you must look at what is going on and evaluate it.

Is it permanent damage that will cut the revenue of the business?

Is the fear real or exaggerated?

3. Rotation

There are trends in investing.

Sometimes institutional investors “rotate” out of a certain group of stocks, just because the market sentiment tells them too. Here are some examples:

  • This could be a rotation out of growth stocks where investors collectively start selling. It has a contagious effect. They sell because they fear others are selling.
  • Do you remember FANG shares in 2018? Suddenly everyone wanted to get rid of Facebook, Apple, Netflix, and Google. Apple came all the way down to the owner earnings price (read about that in my e-book here).
  • Or do you remember how cannabis stocks came into fashion and then were out of fashion?

The difference between sector-specific and rotation is that rotation is not necessarily a sector (you can’t call FANG a sector), and there is not necessarily any specific news.

It happens a bit like weather changes. The wind shifts direction.

It is totally impossible to predict how and when the wind will change.

4. General Market Fear and Sell-Off

Occasionally, almost the entire market falls because it becomes gripped by fear.

We saw this during the financial crisis, at the beginning of the pandemic, and at the beginning of Russia’s invasion of Ukraine.

These kinds of situations are the value investor’s favorite… although the circumstances may be terribly unfortunate (no one wants a pandemic or a war, but opportunities arise in the wake of them).

The important thing here is to ensure that you buy really “wonderful” companies that have growth in both revenues and profits, good management, and competitive advantages that protect them from rivals.

It is also – as always – important to make sure that you find a good balance between the price of the share and value ​​in the company.

Sometimes private investors think something is “cheap” just because the stock fell, but this is not always the case. It may fall from a very high starting point.

In these times, we need to keep in mind that we are still in a market with bubble prices.

When Russia invaded Ukraine, Shiller’s P/E ratio fell from about 40 to about 36. The normal level should be around 16.

In 1929, Shiller’s PE was at 30. In other words, stocks are still much more expensive relative to their earnings than before stocks fell in 1929.

After 1929, it took 29 years for the Dow Jones index to rise to the same level.

If you want to avoid having to wait 29 years for you money to be worth the same as today, value investing is the way forward.

You have to invest in business that you believe will be bigger in 10 years, and you have to do it when there is a reasonable relationship between what the company is worth and what the shares cost on the stock market. 

If you want to learn about finding wonderful companies and figure out the value inside a company, you can download my investment book Free Yourself here.

10 Things I Learned from The Big Short About Investing in Stocks

10 Things I Learned from The Big Short About Investing in Stocks

What can you learn today from the geniuses who foresaw the financial crisis?

I recently reread Michael Lewis’s book The Big Short.

I was amazed at how much I learned from rereading it with my investor’s eyes over ten years after it was released (I previously read it as a business journalist)

Here are the 10 most important and relevant takeaways from the book.

1. A Blog Is a Good Starting Point

Well-known investor Michael Burry, who was the first to predict the financial crisis, actually started his investing career by blogging.

He began with a thread called “Value Investing” on techstocks.com, before opening his own website in 1998.

In 2000, he launched his fund with just over a million dollars (interesting fact: the one million came from the value investor Joel Greenblatt, the author of You Can Be a Stock Market Genius, who had been following his blog for a while).

After he set up the fund and people saw how skilled he was, investors were willing to battle with crocodiles to get in on his fund.

This is how he managed:

  • In 2021, S&P fell by almost 12%, while Michael Burry received a positive return of 55%.
  • The following year, S&P fell 22.1%, but he was up 16%.
  • In 2003, S&P rose almost 29%, and Michael Burry had a return of 50%.
  • And so it continued.

By 2006, he had invested 600 million USD – and he rejected people at the door.

It’s amazing how quickly he developed as a blogger and as an investor.

2. You Don’t Need to Be an Economist to Get It

Do you need to have an Ivy League business degree to become a good investor?

Several of the main characters in The Big Short – those who foresaw the financial crisis – had no financial education at all.

Some people think you need to have studied finance to be able to invest for other people.

But keep in mind, the talented investors who predicted the meltdown (as described in The Big Short) were:

Michael Burry, a trained physician

Steve Eisman, a trained lawyer

One of these two young guys from Cornwall Capital left college without graduating.

Good investors come from all sorts of backgrounds. It’s academic snobbery to think that one must have a certain education to be able to figure it out.

3. Beware of Bubbles.

Be careful when people say stuff like “it always goes up over time.”

There was a lot of bias and euphoria before 2008.

At the time, it was focused on real estate.

Now people say the same crazy stuff about all kinds of things.

What do you hear people say about stocks? Crypto? NFTs?

Look at the price of real estate. Isn’t it at the same level now in many urban areas?

What makes it different this time?

Think twice before you throw your money at something that popular sentiment says “always rises over time.”

It’s usually a sign of a bubble.

4. Most of The People Who Predicted the Financial Crisis Were Value Investors

I’m a bit like a soccer fan watching her favorite team score when I say this:

The geniuses in The Big Short were mostly value investors.

Michael Burry and Steve Eisman were among the very first to see the financial tsunami before the financial crisis. They were both analytical and clear-sighted… and they were both value investors.

Michael Burry became a value investor in the midst of the IT bubble.

“The late nineties almost forced me to identify myself as a value investor, because I thought what everybody else was doing was insane,” says Michael Burry (on page 35).

I’m not really surprised. Of course the first skeptics were value investors.

Value investors tend to look at the facts and see things for what they really are.

Value investors open documents and read them.

Value investors look beneath the hood and kick the tires before buying the used car.

5. A Single Talented Analyst Can Beat the Market

The Big Short contains good stories about the underdog against the big system.

It’s a story about a few independent individuals who realized what was happening with subprime, while the big financial houses did not.

Michael Burry was completely convinced that the whole financial system was wrong – and that he himself was right.

The good story is that he was actually right.

“I have always believed that a single talented analyst, working very hard, can cover an amazing amount of investment landscape, and this remains unchallenged in my mind,” says Michael Burry (p. 192).

6. Don’t Discuss Your Investment Ideas

Michael Burry had a hard time while shorting the subprime market because his investors didn’t agree with his strategy.

They argued that the real estate market would always rise over time, and they believed subprime bonds were very safe investments, and that it was insane to short them.

Many demanded their money back, which would have ruined the bet as it required a bit of patience.

He repeatedly defended himself and explained subprimes over and over again.

In general, he disliked discussing his investment ideas.

“I hated discussing ideas with investors because I then become a Defender of the Idea, and that influences your thought process.” (p. 56)

Once you become a defender of a case, it is difficult for you to change your mind about it.

What does this mean for you as a private investor?

You should only talk about your investment ideas with a select bunch of like-minded people, like a study group of value investors.

Be careful about being very open about your investment ideas. Don’t tell Uncle Bill.

7. Sell When Your Home Is at More Than Twenty X the Gross Rental

There is a funny scene in the book (it’s not in the movie), where Ben Hockett – played by Brad Pitt – disappears for two months.

When he realizes that there is a bubble in the real estate market, he disconnects.

“I got off the phone and I realized, I have to sell my house. Right now,” says Ben Hockett (p. 120).

His house was worth at least a million USD, and it would rent for no more than 2,500 USD.

“It was trading more than thirty times gross rental. The rule of thumb is that you buy at ten and sell at twenty” (still p. 120).

What kind of math is he talking about here?

He just takes the monthly rent and multiplies it by 12 to get a year and then multiply by 10 to find the purchase price and 20 to see the level at which he will consider selling.

What does that calculation look like for your own house?

I moved to Portugal last summer. The house I live in was for sale for 800,000 euros and was for rent for 3,000 euros.

I had the option to buy or rent, and I chose to rent which, I can see now is a decision Ben Hockett would applaud.

8. It’s Okay to Ignore the Chatter From the Media

The media tends to run with the general market sentiment.

When things are going well, the news rolls with that. When there is a crisis, the headlines are scary.

Listening to business news all day makes it difficult for you to distance yourself from the public mood and to remain a rational investor.

“We turned off CNBC. It became frustrating that they weren’t in touch with reality anymore. If something negative happened, they’d spin it positive. If something positive happened, they’d blow it out of proportion. It alters your mind. You can’t be clouded with shit like that,” says Danny Moses, who was one of Steve Eisman’s employees (p.168).

So it’s entirely okay to tune out of business news.

However, you need to keep up with overall news and especially keep an eye on the facts and reports of the companies you have shares in or are considering investing in.

9. Stay Away From the Financial Sector

The financial crisis showed us how difficult it is to see what’s really on banks’ balance sheets.

In fact, it’s so hard that even the financial institutions can’t see it themselves.

“We had always assumed that they sold the triple-A CDOs to, like, Korean Farmers Corporation. The way they were all blowing up implied they hadn’t. They’d kept it themselves,” says Charley Ledley (p. 244).

Wall Street had become the “dumb money,” the author of the book writes.

The people who ran the big financial institutions on Wall Street didn’t even understand their own business. The regulators understood even less.

What does this mean for you?

That as a private investor you should refrain from investing in financial institutions because it’s simply too complex, and as Warren Buffett says: invest within your field of competence.

In other words, only invest in what you understand.

10. People Are Driven by Incentives

Warren Buffett’s partner Charlie Munger once gave an excellent speech called “The Psychology of Human Misjudgment” (which we will have to address in detail in another future blog post).

That speech inspired Michael Burry to look very closely at how incentive systems work.

Most funds get 2 percent of the entire amount invested… no matter how they perform. The funds make money even though they lose money for the customers. That’s a bad incentive system.

Michael Burry’s fund is constructed in such a way that he only makes money when investors make money (like Warren Buffett’s original partnership).

How can you use this knowledge about the importance of incentives?

You can apply the idea in all areas of your life.

Do you reward yourself when you have done a good job? Or are you going to reward yourself for postponing the work? Do you get the cake when you can’t pull yourself together? Or do you put it off until you’re done?

What about your children? Do they get the iPad when they make noise? Or do they get the iPad when a particular task is done? 

What kind of behavior are you going to consciously or unconsciously reward yourself and others for?

How do you reward yourself when you invest? Do you remember to pamper yourself a bit when you have made a good return?

The idea of ​​thinking strategically about reward systems and incentives can change your life.

What Is the Next Crisis?

After reading the book, it’s very clear that Michael Burry is an analytical and an exceptional talent.

The criticism from his investors caused him to close his fund and withdraw almost entirely from the public eye.

Occasionally, however, he talks.

In recent years, he has given interviews saying that there is a bubble driven by the passive investments in index funds.

This view is unpopular.

Everybody invests in index ETFs, and there is a strong belief that the stock market indices always go up over time (sounds like something we’ve heard before, doesn’t it?).

People who say stuff like that don’t look very far back in history. If they did, they would notice that it took 29 years before the Dow Jones reached the same level as before the crash of 1929 (it didn’t happen until 1959).

Sure, stocks always go up over time, but can you wait 30 years?

The bubble we’re in right now is bigger than the bubble that burst in 1929.

What do you do then?

Do like Michael Burry. Choose to invest with a brain.

Michael Burry didn’t stop investing either (you can follow him on dataroma.com).

He’s still at it, but he invests intelligently. He looks analytically at what he is investing in.

You should do the same.

If you want to learn about value investing, you can download my investment book Free Yourself here.

 

 

Crush the Excuses Keeping You From Investing in the Stock Market

Crush the Excuses Keeping You From Investing in the Stock Market

Are you outside the stock market despite wanting to be in it?

Maybe you’re suffering from the very common disease called “bad excuses.”

Read this list of the five most common bad excuses and find out how to cure them.

Excuses grow like weeds in your mind, and you need to pull them out so they don’t strangle your budding courage.

It’s about pulling them up by the root as soon as you spot them.

How do you do that?

Bad excuses are just phrases and stories that we tell ourselves, so the easiest thing is to tell yourself a new story.

Here are five of the most common excuses – and the way to get over them:

1. “I can’t figure it out.”

Repeat after me: “I can do it.”

Another phrase you can say is, “I’ve never tried that before, so I can probably do it.” That’s a Pippi Longstocking quote, by the way.

This excuse is very common among women.  

I hope that by being public about my story, I can give other women courage to invest.

The good news is, you don’t have to be the strongest girl in the world like Pippi or possess any other superpowers or supernatural abilities. You don’t even need a particularly high IQ. And you definitely don’t have to be a man. The stock market doesn’t care about sex, color, race, IQ, or whether you have children or not.

This is really good news, because there is a level playing field.

You need a calm approach and a dose of patience to make it work for you.

Just remember, there are a lot of people who want investing to look complicated because they have an interest in you believing it’s difficult.

The entire financial sector would like to sell you their products.

When you think it is difficult and complicated, it’s easier for them to sell you some expensive products.

2. “I’m too old / it’s too late.”

Instead, tell yourself:  “I have the right age and experience to start investing.”

It’s never too late. Never.

There was a German lady who started investing in stocks at an advanced age (after she turned 60). She became rich by value investing, and she also became famous (in Germany) for her strategy when she was in her 70s. You can try searching for her. Her name is Beate Sander, and she is referred to as “Börsenexpertin” and “Millionärin.”

And by the way, Warren Buffett and his partner Charlie Munger are both over 90, and they’re still very active investors.

3: “I’m too young and too inexperienced.”

Say: “This is the best time for me to start investing. I’ll learn and grow.”

I invest my 5- and 8-year-old boys’ savings. I tell them what they own so that they can learn from it. They’re already learning little by little about value investing.

If you’re reading this blog, you are definitely older than my kids.

I always get so excited when very young people contact me. I think about how much their money can grow. If you’re young, you can really take advantage of the effect of compounding.

Even a little bit of savings can turn into a fortune if you have the time and patience.

The excuse of being too young is probably also related to the perception that you first have to spend all your money on studies, homes, weddings, and future children before you invest.

But this is not an either-or decision. You can invest 100 dollars a month as your life develops and you study, get married, and have children. No, I’m not going to mention any cafe lattes. You can have your coffee. You’ll figure out where you want to save – or grow your income.

4: “I don’t know which platform I should use.”

Repeat after me: “Money loves speed, and I make quick decisions about small things.”

Just pick a platform.

You can open accounts and deposits in as many banks as you want, and it’s not like you’re forced to pick only one and stick with that.

Why not just start with your own bank and get some investing experience there? You can always open another account somewhere else.

In the vast majority of cases, the fees will not mean much because as a value investor you don’t trade that often.

Each platform has introductory videos that can get you started, but to be completely honest, I’ve never watched any of them myself. Most platforms are as intuitive as online banking.

If you are afraid of pressing the wrong button and losing a lot of money in a mysterious black hole on the platform, start with a small amount and give it a try. You’ll be more comfortable with the experience.

5: “It’s too risky.”

Repeat after me: “I seek knowledge and invest with a solid strategy.”

The truth is that you learn and build knowledge, and that makes it less risky.

It’s only risky to invest if you don’t learn along the way how to select companies or funds, or if you don’t do some basic research about what you’re buying stocks in.

Unfortunately, most private investors pick stocks at random.

Many beginners buy shares in a company because they heard it mentioned in a podcast or because someone brought it up at a dinner party. Dude, that’s not research.

But not you, because you read this blog post every week (right?).

You’re already smarter than most private investors out there.

Obviously, you’ll research before investing, and you know what to look for because you’ve read my e-book Free Yourself, which you can download right here.

How to Set Up Your Investing Practice

How to Set Up Your Investing Practice

I once read a blog post that changed my life.

It was about running and maintaining the new exercise habit.

According to the blogger, all you had to do was put on the running shoes first thing in the morning.

In fact, he said you should sleep with the running shoes right next to your bed.

That was the key to your success as a runner.

Just that. So simple.

Now you’re probably wondering what this has to do with investing?

I’ll get to that. First, I just need to explain what’s so important about that simple piece of advice.

When we have to implement and maintain habits, it’s rarely the main action itself that’s difficult. It’s often all the preparation stuff around it.

It can seem so overwhelming to get stuff done. But often it really just requires five seconds of bravery. Which is the time it takes to get those running shoes on.

In other words, the biggest obstacle is getting the running gear on. Once it’s on, it’s so simple to run a few steps. Once you’ve run some steps, you might as well run a bit longer.

You won’t run if you’re wearing stilettos or Italian leather shoes.

If you want to run, you need to place those running shoes in a strategic location so it becomes a habit for you to choose them in the morning.

That’s all you have to do.

When I read this, it dawned on me that this piece of advice can be applied to almost everything else in life.

I implemented it in my eating habits. I had decided I wanted to drink fresh veggie juice every morning.

It was usually never a problem to drink the juice. It tasted good.

The biggest obstacle was getting the juicer ready and peeling the vegetables.

Sometimes small changes can make the difference.

For me, it made a big difference that I – after reading about running shoes by the bed – chose to place the juicer in a central place in the kitchen, where it was more accessible and ready to be used.

Now we come to the part about investing.

The point here is that you need to place whatever stuff you need to do your investment practice in a central location in your life.

So what are “running shoes” equivalent to in the investing world? It’s the space where you do your research and do the actual trading.

You need to prioritize creating a specific space where you can do the work.

If you always have that space set up, there is a greater chance that you’ll get it done.

In this blog post, I’ll give you my five tips to creating that space – even if you can’t set up a home office.

1. Create a Permanent Place in Your Home or Office

In the ideal world, you would have an office where you could research companies and read news.

Having a nice office with all the material you need to read and think and trade is a bit like having the juicer standing on the counter so you get right to it.

But a lot of people don’t have enough space for a home office.

You can still create a place that you know is your designated investing space.

If you’re going to sit at the dining table, choose a place other than the one where you usually eat. In this way, you can physically feel what role you’re entering when you sit down. 

I did that for years.

I would eat on one side of the table where I was facing my kids and had my back to the kitchen.

When the kids were asleep, I would clear the table and sit on the other side of the table, where I was physically a bit removed from entering the kitchen. I was now in my investing and working “seat.”

I would advise you to have your investing stuff ready in a box so you can quickly pull it out and set it up. That’s the next best thing to having an office.

2. Keep Your Investing Space Tidy and Clean

Clutter is unmade decisions.

Clutter can be things you haven’t decided whether to act on, like an invitation. Or it can be things that you don’t really know where they go. That’s also unmade decision because you haven’t decided where it should be, and it ends up being moved from one table to another.

If you surround yourself with a lot of tiny unmade decisions when you have to make big decisions, you will have a hard time focusing on what’s essential.

3. Make Sure It’s Comfortable

Yes, it sounds simple, but many people forget about the details.

You need to make sure that it’s physically comfortable to sit there.

Are your feet grounded? Do you sit up straight in the chair? Is the table the right height? How does it feel to sit down? Do you feel joy in your body, or do you prefer to avoid sitting there?

What are you looking at? A wall? Or a view?

If possible, position yourself so that you’re looking at something nice. You should either face a window or look into some kind of space. Never position yourself facing a wall.

If you’re sitting at a seat at the dining table, you want to invest in a proper office chair instead of a dining chair with a hard seat.

The little things can make a big difference in the long run.

4. Think About What You Need and How You Move

I once asked my maid where she wanted some hooks to be placed. It was fascinating observing her make the decision.

I watched her mime the movements she did when doing dishes and cleaning before she responded. She tried several spots and shook her head before choosing the right one.

She wanted the hooks exactly where she would naturally stand when she needed to use a tea towel or a rag or some oven mitts.

If there is something you need to use often, e.g., a notebook, a pen, a calculator, or some investment books, make sure it’s within reach.

It’s annoying to have to look for things or get up to get them when you’re in the flow.

5. Place Something That Inspires You In Front of You

Yoga and meditation schools often have a picture of a distant guru in India hanging on the wall.

Why? Because it’s inspiring and motivating.

It reminds them of the philosophy behind the movements they make.

You want to find something similar. Choose something that makes sense to you.

What should that be?

Ask yourself: Why do you invest? Who or what motivates you? What got you started?

Some might want a “guru” like Warren Buffett or Charlie Munger framed on the wall.

For me, my children are my biggest inspiration. I want to be bigger, better, stronger, kinder, and wealthier for them.

I like placing either a picture of them or a drawing made by them within view.

Currently, I have framed a drawing that my oldest son made when he was around two. It’s a peculiar drawing of me, and it reminds me that my kids are always observing me, and that they’re constantly judging the whole world based on what they see me doing.

That’s one important reason for doing “the right thing”.

The right thing in this context is to invest conscientiously, long-term, and with calm and patience.

What values ​​would you like to implement in your investments? Who or what inspires you to be that person?

In my e-book Free Yourself you can learn about investing in the stock market the way Warren Buffett does it. You can download it here.