What would our portfolio’s look like if we didn’t abide by a list of investing rules? Investors who are rewarded for bad behavior do not come to know longevity. They blow up accounts, lick their wounds and a few weeks later are back at it doing the same thing that lost them money in the first place. No rules, no strategy just complete chaos.
Insanity is often defined as doing the same thing over and over again expecting a different result.
There is no difference between the drug addict seeking his next fix and the volatility junkie seeking quick gains in the stock market. Scoring a big short-term gain in the stock market releases similar brain chemicals as one who hit big at the roulette table or partook in illicit drug use. If you’re placing several trades a day in the stock market, the action you saw last month will feel as if you experienced it ages ago. As humans, I believe we are inherently born with “quick forgetters”. In other words, our brains naturally tune out behavior we do not want to encounter head on. Who wants to sit and reflect on all the bad decisions they’ve made?
The art of reflection isn’t something that comes natural to most human beings. With that being said, the same concept applies to investing. If you’re placing several trades a day/week it is much easier to tune out the behavior that runs counter to your strategy and set list of rules. A week or two goes by and the trades you made prior are not front and center in your mind. If you are not rigorously documenting your decisions, there is a fat chance you will address this behavior head-on.
If you’re a day-trader or long-term investor, investing should be boring. Full stop. Know your strategy, know your rules and let your system do the heavy lifting. The only credit we as investors should take, is acquiring the willingness to sit on our hands and do nothing. It’s not you, man. It’s your process!
That’s enough out of me!