Investing to most of us is primarily used to grow our capital over time and this surplus is supposedly able to fund our expenses in terms of lifestyle as well as retirement. While there is no doubt that investing might help us achieve our financial growth, there has been an increasing amount of people mistaking the meaning of the actual mental model that an investor must possess in order to make money from investing. To put it simply, you cannot make money from the markets by simply wanting to make more money from the market. Such circular reasoning will not only cause you to lose money from your investments but also make your investing journey overly bumpy and unsustainable. In this week’s post, I will be sharing what investing means to me and how I keep myself in check throughout these years.
Investing is about allocating capital appropriately for growth
No, I am not referring to diversification. That is a given since we all have a certain risk tolerance and at the same time limited by the amount of capital we have. Instead, capital allocation actually means that you should know which stock has a higher potential for growth within a certain period of time. This timeframe can be defined by ourselves but if the potential returns are unrealistic or if the timeline allowance seems to be overly short or long, then chances are that they are incorrect. Personally, my investing methodology is based on capping the amount of capital that I can invest in a particular stock, and each tranche of stock I purchase has different goals. Some of them are purchased for short-term swing trades and others might be earmarked for longer term or dividend investing. These labels help us stay objective and not over-commit in a particular stock in terms of time or capital. For example, if there is a decent return of more than 1% in less than 3 trading days and this happens to be your 4th tranche deployed, then it might be a wise move to take profit for that particular tranche rather than risking a market correction.
Investing is not gambling but yet many investors act like gamblers
“Investing is not gambling”, I am sure many of us will agree with this statement. Yet, many of us will tend to have a gambler’s mindset when it comes to investing. For example, investor A might have a target sell price for one of his stocks at $1.10 but when there was a sudden spike in the market, he immediately abandons his target price and held instead of selling when he had the chance. This eventually results in a missed opportunity as the price retreated back to his entry price at $1.00 after the hype subsided. I am sure many of us have had a somewhat similar experience during the course of our investing journey. Such lessons if learned will help prevent any future occurrences but if ignored, will result in increasingly costly losses in terms of opportunity costs.
Investing well is synonymous to managing time and money well
Few investors actually know that the best way to manage your investments is to learn how to manage your time and money. Easier said than done as time is often spent on all sorts of activities indiscriminately whereas money is used for purchasing items that fulfill a particular utility or function in our lives as we deem fit. What most of us do not realize is the amount of wastage we make over the course of our lifetime as we spend time and money on fruitless tasks and items respectively. To prevent this, start by reducing wastage in all areas of your life and instead channel those resources into activities and things that can bring about positive change and development for ourselves as well as for those around us. By doing so, you will realize that investing in stocks is no different as we remain ever vigilant about wasting capital and time on unnecessary investments and channeling them to areas where there is still potential for sustainable and purposeful growth.
Closing Thoughts
Ever wonder why some investors are always making sustainable returns and yet others are struggling to find opportunities to show off their yields? The main reason behind their level of performance is likely caused by their underlying mentality while investing. If your mentality is one that supports legitimate logic then your portfolio growth will tend to be more sustainable albeit slower as compared to high-risk investment strategies. That said, if you choose to stay on the side of logic and sustainability, your yields will not only be more stable but will also endure the stand of time and volatility in the markets.
