To become a good stock market investor, you need to practice becoming good at making quick decisions on your own.
If you think about it, investing is all about being able to make decisions.
After all, decision-making is the core of investment if you cut it right down to the bone. You must be able to assess all possible information and make the call to say yes or no to investing in a company.
The ability to make a clear decision without relying on others is what sets successful investors – and people in general – apart from others.
When people come to me with challenges they face in the stock market, their problem is often due to the fact that they have left the decision-making to others.
- invested in specific company because someone hyped it up on a podcast.
- bought shares in company because their neighbor gave them a “good investment tip.”
- let the bank invest for them and are unhappy with the result. While others have benefited from 12 years of bull market, their fortunes have virtually stalled, and any profit has been eaten up by fees. Well, they left it to the bank to make the decisions.
Why You Shouldn’t Get Stock Tips From Others
A lot of people are looking for stock tips from others.
Don’t do that. You’re looking for someone to make the decision for you.
If you invest in a company because someone else thinks you should, you’ll quickly become nervous and fearful if the stock drops, because you don’t really know what reasoning is behind the decision.
Can you call that person up at 3 a.m. when you can’t sleep and ask them?
When the stock market takes a general dive, those who have invested following a “stock tip” get scared and sell with a loss.
They argue with family about the economy and sleep poorly at night. It affects their whole life. And that’s just plain wrong.
Making independent decisions is the key to success (in investing and all sorts of other areas of life).
Here are five principles for your decisions.
1. Make Decisions Without Asking for Advice
I’ve done it too.
You ask someone else what they think.
Should I go to the party or not?
Should I wear the blue or the red dress?
The next time you feel like asking someone what they think, stop yourself. Make the decision on your own without asking or talking with anyone about it. Instead, check in with yourself. You have the answer inside you.
Think of it as a practice that will benefit you as an investor… and in decision-making in general.
2. Challenge Yourself to Make Brave Decisions
We only have one life.
What do you want to do with your life? Play on the safe side? Or try your hand at new situations?
When I’m faced with a big decision, I try to ask:
“What’s the worst that can happen?”
If we move to Portugal, what is the worst thing that can happen if it’s a bad call?
It will be having to move back home again after a year. But then we tried it.
Just as you clarify the “worst case,” you must also give yourself space to expect the best outcome.
When you do that, you’ll be heading in that direction. The best case will become your target.
3. Make Quick Decisions
Search for the data you need, but once you have the information, you need to be ready to make quick decisions.
With ordinary everyday decisions, you need to know where the party takes place, what time it starts, whether you should be dressed up or not… and when you have the basic information, you decide if you want to go.
When it comes to investments, follow the checklist and get the questions answered, and once they are answered, you’ll make a decision.
As I say: money loves speed.
4. Change Your Mind Slowly
Once you’ve made that decision, stick to it.
Don’t glance towards the exit. Be faithful to your choice.
Only in exceptional cases should you change your mind.
When it comes to investing in stocks, this means that you have to avoid speculating whether you should sell every time you or the market get a little nervous.
Only reconsider if important new facts about the company emerge or if some key event changes the answers to the checklist.
5. Let the Money Go Work Its Magic
When it comes to everyday decisions, put your focus on whether you really want to have it or do it… and not so much on the finances behind it.
Of course, you shouldn’t throw all reason overboard and live beyond your means; Always make sure that your income is higher than your expenses.
But having said that, don’t let the cost or price of something be the deciding factor in your everyday decisions.
When it comes to investing, look at the company’s valuation and compare it with the stock price. But once you’ve done that and decided it’s reasonable and have invested in it, you must let go of the money. Kiss it goodbye, send it into the universe and let it do its thing. In other words, don’t stare at the stock price as it jitters up and down, as stock prices tend to do.
You need to have some faith in the process…and in your own decision-making ability.