In the last post, we listed ideal behavioral traits for what it takes to become a successful investor. Each trading day we are inundated with information (not necessarily knowledge) on how markets are performing. The daily message is different although the theme usually remains the same. As an investor, how do you interpret this news or these new trends and the impact on your accounts? This leads us to begin questioning our decisions and plans. What’s my 401k doing? How much did our stock purchase plan grow last quarter? Where’s the 529 college account at? It’s natural for our brains to begin to think and learn that this activity of outputs is important and necessary in becoming a successful investor.
At Flowerstone Financial we believe your success is directly tied to how you behave. What you do (or don’t) is a better long term, real life indicator on your progress to becoming a successful investor. It’s only natural to become frustrated, scared, and uncertain in current economic times. This may lead to less than ideal decision making as you feel compelled to action. Human nature has you thinking “I must do something or I will lose everything!” Given all the uncertainty in the markets how can one be successful now – or even be sure of their plan?
Let’s start by how NOT to act, or react (more accurately defined). Taking matters into your own hands, liquidating your investments, and moving proceeds to cash is not what successful investors do. You may fool yourself into thinking that you’ll “wait” for things to calm down. You may follow economic data, interest rates, or household debt levels seeking a glimpse into the future and what may happen next. This move may feel rationale and appear to be the right thing to do in order to protect what you have. The reality is that you’re more likely to regret this decision in the future. But why? Successful investors understand volatility; price movements both up and down and don’t confuse this as risk. They see and experience volatility as the price you pay for owning equities in the long run.
Less experienced investors never accept or understand this concept. They believe there is a short cut, or fast pass, to maximizing returns and minimizing volatility, risk, and uncertainty. Spoiler alert! There is no such shortcut. This will, and has already proven to be, an expensive lesson for some investors to learn. Staying the course, and holding true to your plan through large unexplained price movements in both directions is necessary in accumulating and building wealth overtime.
Successful investors recognize it’s their actions and inputs that generate growth in the long run. They have patience, discipline and persistence to resist deviating from their plans, even during uncertain times like we are experiencing now. They remain flexible with their assumptions and keep their temperament in check. They accept volatility, risk, and uncertainty (even though this doesn’t feel good) as the price to pay in order to achieve positive, long term results. They own diverse equities that generate larger account values through price appreciation and dividends overtime. They recognize everything has a cost and in order to be a successful investor they must persist. They realize that “this too shall pass” even though they don’t know when that will occur. Finally, successful investors have a positive outlook on tomorrow, regardless how today looks.
Let’s pause and ask yourself a question. “Are you currently acting in a manner that supports good financial behavior or are you more focused on short-term outcomes and results?”
Becoming a successful, long-term investor takes time. There is no magic or overnight success here. These principles sound simple but remaining true to them, in the face of human emotion, remains difficult. To make things even more complex, we often carry bad habits learned from well-meaning parents. These factors influence how we address financial decisions and impact our views on risk, debt, cash, and investments.
In our third and final post, we’ll discuss ways you can increase your success as a long-term investor by working with an accountability partner.