I have heard many stories about how badly it can affect private investors and their families when stocks plunge.
I’ve heard of heart palpitations at night, of panic over selling stocks at the wrong time, and of marriages breaking up because of financial arguments.
It doesn’t have to be that way at all. Stock market investing should give you peace of mind, and you can easily remain calm even if the stocks fall.
The short answer is that you need to have a strategy. You need to trust yourself that you know what you’re doing.
“I have a strategy,” you might say.
Are you really sure? Take a look at these ten typical signs to see if you recognize yourself.
1. You Get Worried When Stocks Dive
How do you react when stocks in general take a nosedive? Or when one of the stocks in your portfolio plunges? Do you get nervous? Worried?
Warren Buffett says that you have to have a special mindset and character to be a good stock market investor.
But the truth is that a good strategy gives you a calm mindset and changes your spontaneous emotional reactions. It’s one of those “which came first, the chicken or the egg” things.
2. You Wake Up With Heart Palpitations
You sometimes wake up in the middle of the night with a feeling of restlessness in your body because you worry about your future financial situation – even on days when nothing special happens in the market. You might even feel your heart pounding.
This is wrong. It shouldn’t feel like that.
Your investments should make you sleep soundly and dream like Scrooge McDuck – of flying steaks with banknotes as wings. Because you know that you will be really wealthy ten years out.
3. You Cannot Explain Your Choice of Stocks
You don’t really know why you choose one company over another.
You just force yourself to choose something. You have no criteria to help you sort through the selection.
Maybe it was something you heard about on a podcast or on a financial TV show or read on Twitter. Maybe it was something you read in the newspaper. Maybe it was something your neighbor said. Maybe you can’t even remember.
4. Your Portfolio is Geographically Unbalanced
What does the geographical distribution look like in your portfolio? How many local companies are there? If you’re from a small country like Denmark or Portugal (my home country and adopted country), it shouldn’t be more than 10%.
Because both countries are small and shouldn’t take up too much space either, because your portfolio would end up completely skewed.
If you’re from the US, it’s different, because it’s a dominant market with a lot of market leaders, but you should still make sure that you don’t have 100% in one country – even if it’s the US.
Just click and look at the geographical spread. There’s a page on your platform that does an analysis (just like an x-ray) and tells you what percent you’re invested in each region or country.
5. Your Portfolio Is Overweight in One Sector
Speaking of unbalanced. Have you had a look at the x-ray of which sectors you are invested in? A lot of people have a tendency to repeat themselves and their former choices or successes.
Let’s say you want to invest in green companies. A lot of newbies – in particular women – approach the stock market with the objective of only investing in green companies.
Well, careful that you don’t go unreasonably overweight in windmills and solar power.
Are you a former IT engineer? Careful you don’t go all-in on tech stuff.
You should invest within your field of competence… but don’t invest yourself into a narrow pocket of society either.
6. You Don’t Know What You’ve Invested In
Can you tell me spontaneously what you’ve invested in? No? Do you not know?
Ouch. That’s not good… but it’s very normal, actually.
Some people leave the important decisions entirely to others – maybe to the bank or the pension company. They hand over major life-changing choices to someone else and don’t even look at what’s really going on.
7. You Can’t Remember What You Invested In
Maybe you made the investment decisions yourself… but then you let go of the reins. And now you can’t remember what you bought shares in.
That’s not a viable solution either.
You need to keep your portfolio up-to-date and to check that everything is going as it should.
You should open every quarterly statement, every annual report, listen to the earnings call and follow the news about the company you are invested in.
In fact, you should follow your money like a sports fanatic follows their favorite soccer team. Be a bit interested, engaged and even excited about the journey of your investment.
8. You Check Your Portfolio Too Often
Are you constantly looking to see if stocks are rising or falling?
It’s the company you’re supposed to follow, not the stock itself.
This is a sign that you don’t trust the process.
You’re like a child boiling an egg for the first time and hovering over the pot waiting for the water to boil.
Relax. Have a strategy and trust it.
9. The Quality of Your Life Depends on the Stock Market’s Mood
When stocks fall, you don’t want to go out for a nice meal. You suddenly don’t feel you can afford it.
But on days when things are going well, you order champagne and oysters.
That may be an exaggeration, but the trend is there. You save on days when you feel uncertain about what the market is doing and feel free and prosperous when the stock market is having a party.
10. You’re Alone With Your Money and Investment Decisions
You have no community around your investment strategy because you don’t have a strategy to gather around.
Therefore, you have not found any peers you can discuss investment decisions with.
The first step to learning more and building a like-minded community by joining my free Facebook group Managing Money Freedom right here.
Don’t forget to download my e-book Free Yourself where you’ll learn about the strategy I use which is value investing. You can download it here.