He eats his breakfast, but has that something on his mind. Doesn’t chew well, and since the mind is not on the food, he can forget about digesting the food well.
Later at work, something’s still bothering him. What is it?
The evening is spent with the family, but on the inside he’s still trying to pinpoint the root of his worry.
The night is restless. Couple of bad dreams. Nothing soothing about it.
His investment style doesn’t match his personality. The two entities are totally out of whack. His personality pulls him in one direction, but the way he’s invested his money pulls him in the other direction. He’s mentally uneasy because of this, and his investments are not going to do well in the long run, irrespective of market trend, because his opposing personality will make him take wrong decisions as far as the investment style is concerned.
Why didn’t he bother to fine-tune his personality with his investment style, and bring the two in sync?
Nobody told him to, and he was too dumb to realize it himself.
So he’s got 20% of his networth in futures, but he’s conservative on the inside. Hell.
And another 20% in penny stocks.
Make that the next 20 in small-caps.
And the next 20 in mid-caps.
The last 20 being in large-caps.
Pathetic. Obviously he’s not going to be at ease, after having put 80% of his money in relatively risky ventures, which are not in tune with his conservative nature. Till there’s a common meeting grounds between personality and investment style, this or any person who invests without taking basic nature and risk appetite into account is not going to breathe easy.
When I observe him, it gets me thinking.
What are the things that I don’t want from the markets?
Sleepless nights. A nasty visit from the tax authorities. Obsession to the point of not being able to focus on family. Deterioration of eye-sight. Losses. Low long term returns. These are the basics.
Ok, so I make a few rules for myself.
Like, for example, if an investment starts giving sleepless nights, get out of it.
Keep an account of everything. Play with clean, white money. No hanky panky, no money laundering, no nonsense. Thus any visit from the tax authorities will not turn nasty.
To keep the obsession angle out, and to keep vision intact, I can’t be day-trading. Even short-term trading requires too much market involvement. So, I need to formulate a medium to long term strategy.
Losses, well who likes losses. Thus I must be thorough in my research.
And I want high returns. The only conservative investors in History who have achieved high returns have all been focus investors, not diversified investors. Thus, I need to focus on a few areas while investing, and not diversify into many sectors.
See, it’s as simple as that. Identify your basic goals and formulate your basic strategy around these goals. And then breathe easy even when you play hard!