Thursday, April 5, 2007

Investing Psychology

The most important facet of investing, and one that many people can never learn, is discipline. You can have all the financial knowledge in the world, including understanding economics right to it's core, but if you don’t have discipline, it’s very difficult to make money in the market.

Some things to remember if you want to be a disciplined investor:

1) Don’t get in the habit of chasing a stock if its moving. Set up your plan for buying it, and if your terms are not met, then pass on it.

2) Don’t think that you’re missing out. There will always be another chance, many times with the same stock. So don’t let your emotions lead you into buying a stock at the wrong price.

3) Try to avoid the “noise” coming from Wall Street and on television. The latest IPO or up and coming company may be a great one, but don’t forget to stick to your investment criteria before buying in. There are plenty of examples of “can’t miss” stocks that missed.

4) A disciplined investor does not get shaken out by a short-term drop in the market. The proper time to sell is when the conditions taking place in a company that caused you to buy, have changed. This principle can differ somewhat if you are a trader rather than investor. If you are a trader, it’s important to cut losses quickly, because you aren’t concerned with the long-term prospects of a company.

5) Make a plan, and stick to it. As simple as that sounds, it is difficult for many investors to follow. If you’re serious enough to spend the time on investing, then you’re probably smart enough to succeed. If you can complement discipline with your plan, then you should enjoy a lot of success in the long term.

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