We set goals. Although it is a good place to start, it is not enough.A feedback loop is necessary to allow our systems focus on our goals and intentions. Start with inputs and run them through a process. Then, we can review the outputs and use the feedback for refinement.
This is essential because your intentions and goals will be scattered, they won’t be measured, and you can get lost in your investment strategy. On the highway, we are often distracted by flashing lights and bad road accidents. It means that we have to look away from a clearly defined path to get there. What is the real distraction?
Headlines and stories that shout, scream and beg for attention.
This can lead to stock stampedes that are too tempting to resist. As the share price of a company goes up, you can’t help but be amazed. Your system of patience and methodical intentions suddenly seem ill-suited. It seems that they are killing you while other people make a killing.
What happens to systems and intentions? It’s often FOMO (fear of missing out) that causes it.
We soon join the rush to invest money in a hot company, even though it isn’t profitable. We will buy even though the price is high, despite the fact our systems thinking signals are flashing red. When emotions take control, they are as unpredictable as systems and intentions that are focused, measured, and constant. When we get distracted, focus suffers.
Here are some systems that smart investors use to keep their eyes on their financial goals and intentions.
- Emotional investing is avoided by smart investors
- Investors who are smart know that breaking news can make or break an investment strategy.
- Focus is key for smart investors.
Smart investors avoid emotional investing.
Intelligent investors have strong emotions about money, just like everyone else. But they don’t let their emotions dictate their plans.
It is their refusal to allow them to become emotionally invested. These feelings and irrational motivations may sound familiar to you.
1. Loss Aversion
This is because a $100 loss can cause us to feel less satisfaction than a $100 win.
According to Daniel Kahneman, the author of Thinking, Fast and Slow, can have twice as much psychological power as gains.
2. Anxiety
Imagine a stock price falling quickly because of panic about a news story, such as a market downturn or scandal involving the CEO.
Investors who are too upset by the drop in stock prices to focus on the company’s financial model and business model will sell. This is often the case when the stock has fallen to a 52-week low.
3. Greed
This is often the case with penny stocks. A fluctuation of just one cent per share can result in a quick win for market gamblers.
4. The Herd Mentality
Why should I invest if everyone else does? This is FOMO.
5. Confirmation Bias
This is when new evidence supports existing beliefs.
Another cover story was published about a company that is in serious financial trouble. Although it may be great PR, the business aspect is missing.
You’re a fan, so ignore the former and believe the latter. Let that drive your investment decision.
What can we do to avoid these pitfalls?
First, mindfulness helps. It is possible to cut down on or even avoid bad behavior if we are aware of what to look out for.
We can also incorporate in our -focused investment system a solution that addresses a particular trap where we feel vulnerable. Investors can avoid price updates in order to reduce loss aversion.
We now reach the media.
Smart investors know breaking news can break an investment strategy.
Are financial headlines relevant to your goals? Are financial headlines part of your system?
Although it is unlikely that you intend to do so, it can impact the decisions you make in your system. You might reconsider your holdings if the inputs concern serious wrongdoing or the rise of a sector’s fortunes. Reacting too quickly to a news flash can only cause more trouble.
To stay informed, gain insight into your sector, and hear from our investing inspirations, it is important to follow some financial news. This is not compulsive headline-checking.
Compulsive headline-checking is like checking your social media feeds or opening emails all day. It’s way too much, fast, too alarmist, and sometimes too sketchy. Breaking stories can change at any moment. This is how smart investors handle headlines. Although they may read headlines, it is not the only or main input they consider.
The potential for unproductive reactions to media firehoses is endless when they are integrated into your investment system.
Smart investors prioritize focus.
Smart investors emphasize patience and focus.
No matter how we choose to invest by emotion, headlines or simply leave our investment system alone, there is one common factor: all thoughts and intentions are thrown out the window.
We don’t work with reliable inputs. Instead, we use faulty. We react, not process. Outputs lose consistency. The only thing that can provide valuable feedback to the system is? “Ugh. “Don’t do it again!”
We can focus on our priorities and avoid bad habits that drain our patience and distract us from our goals. Smart systems allow us to prioritize and let our intentions guide the way.
This long-term investment system takes emotions out of investing and prioritizes focus.
- A goal sets the stage for your focus.
- Setting measurable goals is possible when you are focused.
- Research and action are key elements of a process that requires research and then execution. This allows the investor to focus on the reliable inputs such as how analysts rate an investment or simple data like the stock’s price/earnings ratio. Digital tools, which remove all the guesswork, allowing investors to focus on their strategy.
- As outputs, investment decisions based on logic and data are made.
- Feedback is a collection of lessons learned from both failures and successes.
- The system works ten years later. It is aligned with the intended intention but flexible.
Think about the poor financial decisions people make that they later regret. Impulsive purchases, spending way too much, credit card debt, and going over budget.
They probably didn’t have any intentions. They didn’t say “I intend …” so they didn’t set a goal and don’t have a system to guide them towards smarter investing.
A simple process and simple statements go hand in hand to simplify your financial life. Sometimes you may face obstacles and sometimes resist the temptation to follow the latest trend. You’ll never reach a dead end if you keep at it.
This post was written by All Seasons Wealth. At http://www.allwealth.com, we provide expert advice and emphasize the importance of creating in-house portfolios to personalize your strategy for asset management, financial planning, and cash management. We utilize research and perform market analysis to provide you with a financial advisor in Tampa. No matter your needs, we can work with you to develop a consulting solution tailored to you.
Any opinions are those of All Seasons Wealth and not necessarily those of RJFS or Raymond James. Investing involves risk and you may incur a profit or loss regardless of the strategy selected. Investing involves risk and you may incur a profit or loss regardless of the strategy selected. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment. Past performance may not be indicative of future results.
Comments are closed.