Investment Rules 9 and 10: Keep your emotions in check, Enjoy the journey

Rule 9.  Keep your emotions in check

 

The investor’s worst enemy is likely to be himself – his feelings and compulsions, his decision-making flaws. A sound investment strategy can be scuppered when the crunch-time comes because excitement, fear, impatience, greed and other emotions get in the way. Being temperamentally well-suited for investment is far more important than IQ or knowledge of accounting, economics, stock markets, etc.   As Phillip Fisher said a good nervous system is more important than a good head.

Here are some of the things we must guard against:

1. Getting caught up in the minutiae and forgetting that the investment process must be kept as simple as possible – do the ordinary extraordinarily well.
2. Becoming rigid in method and thought. Charles Darwin pointed out it was neither the strongest nor the most intelligent that survives, but the most adaptable to change. So it is with investors. Be willing to continually challenge and amend your best ideas. Identify and reconcile disconfirming evidence.
3. Over-optimism. “Optimism is the enemy of the rational buyer”. (Warren Buffett) It can lead you to bet big on hope rather than evidence.

Greed and Impatience. Many investors feel they should be making double digit returns every year.  Dreaming of this they push the boundaries of prudence by borrowing to invest, or putting money in much more risky areas, or rushing to the latest hot theme, or selling for a quick profit. They feel they have to be hyper-active in the market to achieve their goals, but as Pascal said “It has struck me that all men’s misfortunes spring from the single cause that they are unable to stay quietly in one room.” Patience is needed when you sit with a lot of cash doing nothing but wait to f…………………………….

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