The 4 Crucial Beliefs Of Successful
Investors
If you don’t believe in yourself as an investor and have
faith in your methodology, trading the markets will be like trying to
nail Jello to the wall.
We use to joke that my high school buddy, Brian Maxwell, was
a force of nature – so much so that the weather would follow him wherever he
went. In truth, it was his beliefs that
fueled his behavior. Brian was a world-class marathon runner. When he created
PowerBar, he believed beyond the shadow of a doubt that its formulation would
allow him to break through the inevitable 21-mile wall that all runners hit in
a marathon race. His belief in
his PowerBar formulation allowed him to aggressively run to 21 miles knowing he
would blast through “the wall”. The
faith he had in his methodology facilitated his near-evangelical zeal as he
pedaled PowerBars out of his van at numerous race events. His beliefs resulted in the building of a
300-person company that he eventually sold to Nestle for $375 million.
Ask yourself this:
what do you believe?
Similar to my friend Brian, I know that my beliefs in four
crucial areas determine how my trading profits will stack up at the end of the
year. These are the four “touchstones” I
ask myself each week:
Do I still believe 100% in the methodology I have written
down in my trading plan?
Do I believe I still have the ability to control my emotions
and produce the appropriate behavior necessary to trade the market?
Is my faith in my tools and indicators still unwavering such
that I can confidently risk my capital d on their readings?
Do I still believe in the “law of probabilities” and that by
consistently executing my system, I’ll earn a profit?
In embracing these four beliefs, I see myself as part
trapeze artist and part quarterback. As
a trapeze artist, I am able to let go of the bar trusting that a partner will
be there to catch me; as quarterback, I throw the ball to X believing that the
receiver will be where he should be. My
beliefs become my trading partners.
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In my experience, it’s been uncanny how my beliefs and my
ability to envision certain outcomes – both athletically and professionally –
have contributed to events becoming
reality.
Bottomline: As an investor, you must be intimately in tune
with your beliefs at all times and be aware of those symptoms that might
suggest your beliefs are drifting off course.
Understanding your own beliefs about investing will empower you to
produce consistent profits in a manner no other personal attribute can do.
In his Market Wizards books, Jack Swagger interviews an
outstanding collection of renowned investors, traders and money managers. The single most common thread that each
mentions as being a major contributor to their success is their money
management skills.
The challenge is to understand what they mean by money
management. The internet is full of
definitions, ranging from simplistically useless to overly complex and
potentially harmful. In past years, I’ve
surveyed my classes for their personal definitions. On two separate occasions a decade apart, we
constructed in class definitions that I believe accurately capture what these
market wizards meant when they attributed their success to their money
management skills.
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What both groups of the investors I surveyed agreed upon was
the notion that money management is a process.
In its most basic form, it involves setting goals, getting organized and
executing a written investing plan. Both
groups also agreed that money management is very personal and individualistic
in nature. It will change over time as
the investor’s needs shift, but honesty and candor are essential ongoing
ingredients in any effective written money management plan.
My first investor group formulated a money management
process consisting of 8 issues constructed as questions that challenged each
individual investor to answer in writing in a manner most appropriate for him
or herself.
How do you get your money?
What are the sources of your cash flow and are they dependable or
variable?
How do you feel about money?
Did you inherit your wealth and see money management as a burden or part
of your lifestyle? What is your
tolerance for risk?
Where do you move your money? What percentage of your assets are you
comfortable placing in various asset baskets?
Do you see yourself as an investor, a trader or a watcher?
How do you move your money?
What are your investment analysis routines and which trading methodology
do you employ?
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Why do you move your money?
How will you decide it’s time to invest?
How do you protect your money? What sell disciplines do you have in
place? Have you adequately insured
yourself and your family to protect all your assets?
How do you spend your money?
What are your lifestyle priorities?
How much money will you invest, spend and distribute?
When will you spend your money?