When stocks are volatile, you might develop an itchy trigger finger.
You might even have that finger control your stock purchases more than you do.
It’s not uncommon for people to buy and sell spontaneously as stocks move up and down. The danger here is that you’ll sell in fear and buy in greed, and everyone knows that is the exact opposite of what you are supposed to do.
How do you avoid that?
There are some easy steps that can help you soothe that nervous trigger finger. Here they are:
1. Have a system
Don’t invest just because the dog is wagging its tail.
You should know exactly what you want to do in advance: What company you want to buy and when you want to buy it.
You should have a system that you use to drive your investing decisions.
I am a big proponent of value investing.
This means you investigate which wonderful companies you believe will have an even better future in 10 years, and you calculate when they are on sale on the stock market.
In other words, you know exactly which companies you want to buy shares in and you know at what price.
There are of course many other methods.
Another popular one is index investing.
If you invest in funds that match an index, you should also have a system, like dollar cost averaging. Dollar cost averaging means that you invest exactly the same amount every month in the same fund, following the market as it rises and falls.
You could boost that by investing more when stocks crash – but then you should decide in advance how much they should fall from the top before you add another chunk of money – and you should know exactly how much extra you will invest.
2. Do Your Own Research
Don’t ever invest in something because someone told you to. Not even your favorite podcast host or your guru or your father.
If it’s a company, you should at least research their product or service, the leadership, their level of debt, their competitive advantages and look at some fundamental calculations. I teach you how to do that in my free e-book here.
The same applies to funds. You must research them too. Some funds have derivatives, which you don’t want. Maybe there are certain industries or companies that you want to avoid out of ethical reasons.
You can look up your favorite fund on different databases like morningstar.com or etfdb.com
If you don’t research your investments, you can become very nervous and jittery when stocks fall, and your trigger finger will keep you awake at night.
Researching before you invest will allow you to keep calm when the market wags its tail.
3. Enter Your Orders Outside Opening Hours
Watching stocks go up and down while the market is open is a slippery slope towards day-trader land.
You will be like the Daltons in Lucky Luke. You will shoot a lot, but you will miss. You avoid having your impulsive trigger finger run the show by entering your orders as a limit trade when the market is closed.
In this way, you can remain calm and stick to the system you have chosen.
People who don’t invest in stocks, think it’s boring. But those of us who invest know that you can become just as addicted as a gambler in a casino.
You must always remember that we invest in order to live a better life in the future.
But you should never forget to live a rich life right now while your money machines are working in the background.
Don’t check the price every day.
Check on the company, read the news and the quarterly report, but forget about the stock price in the short run.
Go live your life.
Before you buy that stock, don’t forget to use my check list. You can download it here.