One of the most common mistakes that investors run into is blindly following what other successful investors do. They might be able to win a lot doing that, but the moment they are left on their own the good time comes to an end. Usually, the missing piece of the puzzle to the difference in performance is the mindset. Those successful investors bought the stock of a certain company for some reasons. If they’re not able to understand the reasons that lead them to purchase then they’re not going to be able to carry out the process on their own.
In this post, I’m going to provide some insights into why your investing mindset is so important.
Disclaimer: None of what I’m talking about should be considered as financial advice. It is only for entertainment and educational purpose only.
Mindset Defines How You Think
Before you decide to make a purchase of a company’s stock a lot of information was processed through your head. All of that information leads you to make the decision to purchase a company’s stock or not. Specifically, your mindset influences some key factors such as:
- How you process information
- What you look for in a company
- Your ability to establish correlations
How You Process Information
Something on the surface level might seem bad, but if you dig deeper and find more meaning it could be a good thing. This way of looking at information can let you see what others don’t, which enables you to see more opportunities. For example, news of a company is failing to meet demand might seem bad. However, understanding the reason is that there is so much demand that the company couldn’t push their products fast enough is a good thing.
What You Look for in a Company
Each person looks for something different in their investment. Depending on your mindset the type of company that appeals to you would be different. Someone who is comfortable with risk wouldn’t mind a volatile high growth company. While someone who likes a company that is stable then a company that already has a well-established business model might be the way to go.
Influence How You Establish Correlations
A big part of picking winning investments comes down to making correlations. The way how you intake information helps you understand progress in the world. This in turn lets you identify the next trend and what will get wipe out. It doesn’t matter how well run and established a company is if the industry of that company is going to get wiped out.
Mindset Defines Your Action
Your mindset dictates how you act. For that reason, your mindset can lead you to make some fatal mistakes in investing. Specifically, your ability to carry out a plan and what you do as an initial reaction is influence by your mindset.
Effects on Your Initial Reaction
When you see the price of a stock shoot up what do you do? Some of you would chase after it by buying the stock. Some of you would stand back and not chase after it. This behavior really comes down to your mindset. Fear of missing out is something that everyone can feel, but how you react depends on your mindset.
Another example is when a stock drops a lot. What do you do? For some, it is to immediately sell so they don’t lose more. For others, it is to buy more since it is at a discount. Again the action you take depends on your mindset.
Your Ability to Carry Out a Plan
Having a plan is great, but the next challenge is to carry it out. Many things look good or seem easy on paper. The execution is a whole different story. It’s not going to be easy to press the buy button on a day with big drops if you’re not operating with the right mindset. Similarly, it is just as challenging to hold and not press the sell button when you see big drops.
To conclude, the first step to becoming a successful investor starts with your mindset. What works for others might not work for you, so the process of having the right mindset is going to be an evolving process. Some is going to come from your’s or other’s wins and losses. With enough experience, your mindset will change and hopefully bring you more wins.
I hope this post was helpful to you. If you found this post helpful, share it with others so they can benefit too.
If you’re new to investing and need a guideline to help you start your investment journey you can check out my post on setting yourself up for financial success. I also have a post about beginner mistakes to avoid in the stock market.
To get in touch, follow me on Twitter, leave a comment, or send me an email at steven@brightdevelopers.com.