Mantras to stick by in your early days of investing
Make mistakes, make lots of them but make small mistakes. Ones that doesn’t harm you.
It is true that many new comer investors drop out within a year of investing. On a average more than half off new comers will close their trading year in a loss and they will hit they hay for the rest of their life.
My suggestion to fix is this to earn a profit through out you life is to know which cognitive biasness you should rely on. Hindsight biasness can the most damaging of all. As soon as you predict about an outcome of the market and it comes true you start to believe that you know it all along and your start to make big bets. Then your luck runs out and you take some major tolls that even erodes your previous gains.
But some biasness can prove to beneficial for you such as anchoring or focalism. There are few things that are unchanging and stick out like a sore thumb who’s is name principles, these principles are timeless as you see great analysts and investors stick by it. So these principle/anchors/mantra will help you to get by the rough sea of initial terms of investment where a bad decision can set you a few years back.
- You make profit when you buy
Don’t be confused at it. You make capital gains on your assets when you sell them. But, buying high and selling low is not the answer. Do this only when you have a short term goal.
2. Don’t time the market
Time in the market beats timing the market. Studies have shown that even missing out 5 best days in the market over period of 20 years can have substantial lesser gain. It is very difficult to time the market. Buying only when you see a dip in the market seems like a good strategy, then the dip of the dip comes by. When you think it could not go any further down then comes mother of dips. Market goes through small correction every 12–14 months, a major correction every 3–5 years, and mother of all corrections about 20–25 years. Then there is always an uncertainty if the pattern will be same. The point is you may never know which one is it.
Do the cost-averaging.
That is you invest a fix amount of money at fix interval of time (weekly or monthly).
3. Snowball effect
Compounding is truly 8th wonder of the world, doesn’t matter who said it. As snowball effect says, if you start from ground zero you invest a small amount. As you keep investing in a small amount routinely and whatever profit you make reinvest them. You will being to see more money starts to pull more money, that more money starts to pull even a bigger amount than before. Finally, you will realize your snowball of investment is so big that it is now difficult to stop. Don’t take from me, take it Warren Buffet.
4. It is difficult to beat the market. Be the market.
What is beating the market means? Their are various board index funds and their are sectorial or themed index funds. Here I am talking about the board index funds only. Most countries with stock exchange have one or more index funds, such US has Dow Jones Industrial Average, S&P 500, and Nasdaq, India has Nifty 50, and Sensex, and Singapore has SGX. These are funds that has various stocks in their listing which is well diversified across the market. It is difficult for most people to handpick a group of stock to invest and earn more profits that these index fund. It is better to start by investing in these index funds.
I really hope that this will helpful for you. Sometimes to really appreciate the good you should see know the bad, so may be read this articles again later if you feel the pain of taking losses.
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