A habit can be a powerful thing, ever drive to work not remembering how you got there? What if investing could become so ingrained in your nature that you no longer think about it.
Malcolm Gladwell wrote a great book called Outliers:The story of Success. Claiming that the key to achieving world-class expertise in any skill, is, to a large extent, a matter of practicing the correct way, for a total of around 10,000 hours. Like always there is a rebuttal to this, saying it takes more than just practice.
The key to the 10,000 hour rule would be the ability to tune your process. Realize where you made mistakes, where you excelled and tuning your process to reduce the mistakes while building off what your good at.
If you have a long term mind set, you should be able to tune your process to work for you. (I don’t mean just for long term investing, this also works if you are planning to be a day trader for a long period of time)
If you stick with it for the 10,000 hours and you have to mindset to reflect on your mistakes, new habits will be formed. The key is when you make a mistake, you realize it, you learn from it and you take action to prevent that mistake from being made again. At our day jobs it’s easier, your boss will tell you when you made a mistake and how to avoid it next time. Investing, you’re on your own…unless you have a good group of twitter investors to learn from!
Dollar Cost Averaging
Probably the very first good habit I made for my self was dollar cost averaging. I went over this in my Buying Strategy post. This habit it self helps in other ways, instead of worrying that your stock has dropped in value, you think of it as the stock being on sale. This way if the stock goes up your happy, seeing profits. If the stock goes down your happy as you can buy more for less.
I didn’t follow this habit when I purchased THCX recently. I had about $8000 cash and bought the full amount of shares I could with this money. I bought it at 4.32 and shortly after the stock dipped to 3.80. If I had only bought 1/2 position at first I could have averaged down into the dip.
Buying the Dip
This could be part of the DCA habit above and also a habit in its self. If you can buy the dip it can easily help accelerate you gains. Buying DOJA was a prime example of this habit working well. I also did a post on Buying the Dip as it has worked out so well for me.
Don’t Panic Sell
There have been many times when my initial positions is in the negative. Buying the dip and dollar cost averaging pretty much prevents me from panic selling as I should be buying when stocks are on sale, seeing it as an opportunity. This habit basically just taking no action while the market dips, a habit of doing nothing.
Having Cash on Hand
I used to never have cash on hand. I wanted to be fully invested at all times, fear of missing out is the culprit. I didn’t realize that not having cash on hand would mean I could miss out on opportunities like buying a stock during a dip. I just recently started having some cash on hand and starting to like it. Patiently waiting for an opportunity to arise.
After selling a portion of my Aurora Cannabis stocks at 9.00, I realized I made a mistake when I looked at the trend. Before making any buys or sells, I need to spend more time looking at the trends. This could prevent me from selling at the wrong time. If you only look at one short term trend, you could be selling during the dip without even knowing it. (I sold ACB during the dip without realizing it, the worst time to sell)
Double checking Market Cap
After mistakenly buying DOJA thinking it had a market cap of 7mill, I now check the TSX and CSE websites to check for shares outstanding before making any share purchases. Before making this mistake I never confirmed, I just assumed the trading platform had the correct market cap. Many of these marijuana stocks do not have the correct market cap on my trading platform.
This would be my most recent habit I have developed and glad I have, I want to have correct info when I make my investments.
As time goes by, we continue to gain more experience while investing. Making a few mistakes is actually a good thing as it can help you develop new habits to prevent the same mistakes from happening. Starting off small in your investing can help limit the cost of these mistakes. I would rather learn mistakes losing a few hundred dollars vs starting off investing with hundreds of thousands and losing a huge amount.
We have all seen the reddit posts of people putting 300k on the line, asking for which stocks to invest in. Do you want learn you lessons risking 300k or 1k. I would rather learn risking a smaller amount. My account has grown a lot but I think it would be different if I came into this sector and decided to throw down 700k with no prior investing knowledge.