Detailed safety statistics and live news are easy to obtain online, which has leveled the informational playing field between Wall Street and Main Street.
If you determine that you have an essentially rational predisposition, you can greatly control the remaining emotional vestiges by relying on a process.
You don't have to be a financial analyst, but you should be comfortable with the numbers.
The difference in wealth accumulation between these two numbers is staggering. Over 20 years, an investment of $ 100,000 would increase to almost $ 450,000 if it was capitalized at 7.81%, while an investment of $ 100,000 would increase to just $ 198,600 if it was capitalized at 3.49%. However, it is important to note that the yield spread had little to do with the returns of the average stock mutual fund, which underperformed the index itself, but was more affected by the fact that investors did not They were able to manage their own emotions and it moved into bottoms near the market highs while recovering from the market lows.
Spock vs. Captain Kirk
One of the constant themes of the original 1960s television series "Star Trek" dealt with the relative strengths and weaknesses of emotion versus reason. Captain Kirk, the captain of the Starship Enterprise, often made decisions based on his human instincts, which his purely logical Vulcan first officer, Spock, sometimes found irrational. However, these "instinct-based" decisions produced positive results that seemed unlikely on rationale. Sometimes emotion and instinct succeeded, even in the face of reason. Unfortunately, while instinct prevailed in outer space, when it came to investing, Spock would beat Captain Kirk in the long run. There are cases where following a hunch pays off, but not very often. In the long run, reason, logic, and discipline will beat emotions at all times.
Our problem is that, like Captain Kirk, we are human. Divorcing ourselves from emotions is against our nature. Still, as far as we can, that is what we must do. Fear will lead you to sell just when the falling price of an investment is near its low. Over-optimism will make you buy just when the price is at its highest. Disciplining your emotional side is no easy task, even for a trained and experienced professional. Before trying to do it yourself, you should make an honest assessment of your emotional makeup. You don't have to be Spock, but you can't be Chicken Little either!
If you determine that you have an essentially rational predisposition, you can greatly control the remaining emotional vestiges by relying on a process. You must develop some logical and rational process to maintain discipline in the face of emotion. Without this process, you are bound to underperform. This process should be quantitative in nature and a firm focus.
Basic attributes of a successful investor
Assuming you have the right emotional makeup, what other basic skills and resources are required to make your own investment decisions successfully? Some proficiency in math is essential. You don't have to be a financial analyst, but you should be comfortable with the numbers. The words in an annual report or prospectus can paint a deceptively positive picture, but the numbers are harder to manipulate. You also need to be able to run present value and / or future value calculations. This is easy to do with any financial calculator.
Becoming your investment advisor and money manager isn't easy, but it can be done, and if you really enjoy investing, it can be rewarding.