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By Michael Sterling
Sometimes we’re our own worst enemy when it comes to investing. Our human impulses can take the better of us, based on unusual or unsubstantial evidence, and before we know it, we are in the hole. Investing is more than just risk. It’s strategy. Risk without intellect is like playing Russian Roulette with five bullets in the cartridge.
Think of it like gambling. Though some people may disagree, gambling takes thought. It’s a mathematical process of elimination with the odds, and guess what, investing is the same strategy. Acting on impulse, instead of logic, can be the very thing that destroys you.
There are so many mind traps you can get caught in. You can’t judge a company’s returns by how giant their corporation is or by how many franchises they have and most importantly, never because someone else says so. Companies want you to talk about it’s success, this is part of their marketing strategy.
By repeating words like, “best” or “unreachable” or “giant” or “monopoly,” they can pull you in to their psychological trap. Don’t judge any company by their advertisements. It could be their just trying to distract you from their competitors. When a product or service is great, trust me. They don’t need to deliver over the top commercials.
Remember Blockbuster? USA News described how, despite a booming marketing strategy, they failed to catch up with new services like Netflix and Redbox. Hundreds of stores closed and they’re still paying off loads of debt. Investors with their hands in the company lost truck loads of cash in a matter of months.
Don’t be blind! Look at a company’s competitors. Which one is more innovative? Look at data, new inventions and most importantly, new markets.
Have Reliable Sources
When you’re listening to untrustworthy sites or sources, you have a problem. Investigate where you’re getting your information from, a lot of times giant bankers or CEOs will have their hands in the media and give false information to try and push investors away so they’ll reap more returns when the big pay off happens. Pay attention. There’s a lot of greedy people out there.
Judge On Your Situation
If you have a buddy that seems to be making a ton of money on his investments, don’t try and “mimik” his strategy. He is playing the game based on his limits and boundaries, and you should do the same. Some of us don’t have $5,000 to invest, others (like your buddy) might.
Know your limits and don’t get caught in trying to copy success. Success is an individual result, there’s no technique to it whatsoever. Don’t seek confirmation from others and act based on that advice. Don’t get me wrong, advice can be a great thing. But take it with a grain of salt and don’t let it be the basis for your future.
Jump A Sinking Ship
Denial can be the worst thing when it comes to investing. Intuition is a powerful tool and more often than not, it’s right. But intuition is only based on years of knowledge about a particular thing. Unless you know a company’s history very very well, don’t try and “feel” like you know where it’s going to end up.
When something doesn’t feel right or isn’t in your favor, don’t be afraid to back out. Think of it like a poker game. The sooner you leave when your odds are down, the more money you’re likely to save. Don’t hold on to stocks for over ten years expecting a different result than what you already have seen.
Non One Is Smarter Than The Data
If you are watching the stocks from your living room or office in Idaho and assume you know better than the experts or company owners themselves, you’re a fool. Don’t be blinded by pride. This makes you more vulnerable to believing conspiracy theories.
Use this logic when dealing with others as well. Talk with your investment banker and your accountants. They’re the ones who know a lot more than you do, but also be sure you can trust them. Just because they have a degree doesn’t mean they know more. Their “talk” might be more convincing than results. Fact check.