When I left Merrill Lynch three years ago, I lost the perk of having a Merrill broker assigned to help me manage my retirement account. At my new firm, I was given a list of designated brokers among which were E-Trade, a self-directed electronic trading platform. But choosing E-Trade would mean that I would be solely responsible for making my own investment decisions.
Everything that I knew about investing, I could fit into one thimble. This was going to be a daunting task and I questioned whether or not it was a smart financial decision. But my Aunt Vera who is sensible and pragmatic encouraged me learn and to take this on as a new hobby. So I figured “what the heck it’s only money.”
So now its three years later and I am actively managing my own portfolio. Last year my return on investment was 14%. Not bad for an amateur. This morning while I was lying in bed thinking, it occurred to me. How I achieved this result is really no different than how I approach my career or any other goal in my life.
It is innate behavior that transcends the task at hand and if I were to boil it down, it looks something like this:
- Do your homework. When I first started to manage my own money, I transferred the stocks that my Merrill broker has bought into my e-trade account and then I did nothing else for weeks. Instead I bought five books on investing including one the greatest trading mistakes every made and one on the psychology of investing. I not only read them, but I studied them. This gave me a basic foundation.
- Become an information junkie. This is really a nuance to doing your homework, but I can’t emphasize the importance of this enough: Study and learn; and keep learning constantly. There are no short cuts here – you have to do the work. I subscribe to half a dozen publications and read all news articles which I receive from various media sources. Additionally, I talk to people who know. I am fortunate to work in this industry which provides me with access to resources and surrounds me with experts on this topic. But I also have an inner circle of close confidants who act as my sounding board. Interestingly, they each have very different philosophies and strategies and when it comes to picking stocks they always have opposing views – which is why the next point is so critical.
- Hone your gut. This is my personal cardinal rule for success. In life, there is no substitute for keen instinct. In this example, instinct is having a feel for the markets. That means that despite all logic and all the research and despite the fundamentals and the technicals, you listen to the voice inside and go in your own direction. One could argue that it is the same voice that told me to buy Silver at a price of 40, but, we won’t talk about that trade…
- Seize the moment. Another personal favorite. Watching from the sidelines is fine for a while, but if you want to make money you have to get in the game. Timing the market for its floor or its ceiling is extremely difficult to do, but watch carefully and be ready to seize the right opportunity. I like to think of myself as a cheetah, watching the gazelles as they graze on the plain and patiently waiting for the moment when one young gazelle strays away from the heard – and then I POUNCE. [Click on the word “POUNCE” for full effect]
- Discipline. We all have chatter in our heads, whether it is driven by fear, insecurity, arrogance or whatever – it is all ego, we all have it and it is bad. The ability to unclutter the mind makes for clearer thinking, decision-making and ultimately actions. Behaviors around investing are exacerbated by the ego because the element of money brings forth our unconscious feelings about money all while adding pressure to the equation. It is best to be dispassionate when investing. Set your strategy and execute with discipline.