I’ve written before why you need to start investing now as well as the real way to make money in the stock market. But even with all of this excellent information, you still may find yourself making mistakes when it comes to investing.
The biggest mistake that investors make is giving into their emotions and buying and selling at the exact wrong times. So how do you avoid this problem so that you can be a successful investor? Here are a handful of psychological tricks for investment success.
1. Look At Stocks As Items In The Grocery Store. When we go shopping to the grocery store, we want to find things on sale. The lower the price, the better. But when it comes to investing, we think the complete opposite. If a stock we own drops, we get nervous and consider selling.
The reason we do this is because of money. We don’t like losing money and we don’t see investments as companies but rather as our money. When the value of stocks drops, our first thought is that we are losing money.
By thinking of stocks as grocery items, we stop the emotional reaction to losing money when the market drops. Instead we evaluate whether or not it is a good time to buy more shares.
2. Avoid News About The Stock Market. I lack willpower when it comes to eating healthy. If there are chips or a pizza in my house, I will eat it. I just can’t help myself. How do I get around this? I don’t buy these items. If they aren’t in my house, I can get by fine without them. I don’t have the need to run to the store to buy them.
When it comes to investing, you have to treat financial news in the same light – don’t even let it in your house. Stop watching the 24/7 business news channels and visiting the investment websites you typically look at. The more you can avoid the news about the stock market, the lower the chance of your emotions getting sucked into the doom and gloom or exuberance and making a trade you will regret.
3. Open A Play Account. Of course, there will be times when your emotions do win out. To overcome this issue, open up a separate investing account. Put 5-10% of your money in this account and make sure it is money you are OK with losing should you do so.
When you get the urge to trade, trade in this account and let your long-term investing account ride out the volatility. Doing this solves both issues: you get to emotionally react to the market, but you also get to do the right thing and ride out the volatility.
A bonus to this point is to see how your performance was in both accounts at the end of the year. Chances are your play account’s performance will be worse than your long-term investing account. This should help you in the future with overcoming the need to react to market news.
4. Set Up Automatic Investing. Most discount brokers now offer you the ability to set up an automatic investing plan. You may be wondering what the benefit of doing this is. The benefit is that when you set up an automatic investing plan you are buying regardless if the market is up or down. In other words, you take your greatest enemy out of the equation – your emotions.
5. Keep A Journal. Buy a notebook and make a point to write in it when the market drops and you are worried about the future. Be sure to include the date, the closing value of the market, as well as the amount the market was down. Write about how you are feeling and what you think is going to happen.
From there, re-read the journal when you are feeling the same emotions in the future. The goal of doing this is to put your emotions into perspective. Ideally, you will also realize that even though the market dropped that day, it has since come back or at the very least, the world hasn’t ended.
There are all sorts of tricks you can use to help you be a successful investor. Your emotions are your greatest enemy when it comes to investing. These tips will help you to keep them in check so that you don’t make an emotional decision. This is the key since we usually never make a wise decision when we are emotional.
Do yourself a favor and pick the tricks in this post that you feel will work best for you and make a habit of following them. Doing so will allow you to experience more success with your investments.