Three Simple Tips Make You a Better Investor
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The stock market is not your friend. Instead, it awakens a dangerous emotion – fear. Often we are too fearful to invest in stocks, or, having taken the plunge, we become convinced that we are invincible, that our risk tolerance is limitless.
Fear is not your friend. Being a successful investor requires emotional balance.
Here are some suggestions on how to create it:
- Don’t constantly check your portfolio. Next time you notice the price of a stock you own move up or down, think about the factors that may be influencing that move. Stock prices change every day, but that doesn’t mean the long-term value of the company has changed. Prices can move for many reasons, because stocks are held by different people with different time horizons and risk preferences.
- Ignore the media messengers. Business television in particular encourage you to think about the stock market as a game. If you play along, you’re at risk of nullifying all the research you’ve done as your time horizon dwindles from years to minutes.
Television strips from you the humility that is so needed in investing. Business TV commentators are incentivized to project an image of infallibility (the opposite of humility). You are never going to hear from them the words that are the essence of investing: “I don’t know.” This is dangerous, because it may cause you to stop thinking about investing in terms of probabilities and make you believe that you can be an expert on everything.