about 3 years ago • 4 mins
There are two types of investors: those who have a plan, and those who don’t. The first sort stick to a pre-planned, measurable, and repeatable investment process. The second jump from one trade to another, quickly abandon balance, and react to – rather than anticipate – market movements. I know which category I’d rather be in…
"To be a successful investor, you have to have a philosophy and process you believe in and can stick to, even under pressure." So says Howard Marks, one of the most successful hedge fund managers of all time. Here are three lessons for those looking to follow more in Marks’ footsteps next year.
🧙♂️ Step 1: Define your philosophy
Do you believe that markets know everything? If not, what’s your edge – how do you plan to anticipate crashes or identify undervalued companies? If you’ve already got some investing experience, look objectively at your performance and ask yourself whether the numbers prove your approach is working, or whether it’s time to try something new instead. Be realistic about your strengths and weaknesses: beating the market is hard, and there’s nothing to be gained from lying to yourself (something I learned the hard way).
📋 Step 2: Define your game plan in advance
Someone once said that every game has a winner – and every winner has a gameplan. Yours should start by clearly setting out the following:
✅ Step 3: Respect your rules
Your biggest enemy is generally yourself. When faced with uncertainty, humans tend to use shortcuts to make decisions. Doing these four things should, however, help you stick to the plan:
Even if the markets have been kind to you in 2020, the best time to repair the roof is – as John F. Kennedy put it – when the sun is shining. With a new year on the horizon and (with any luck) a bit of downtime beckoning over the holidays, right now is a great moment to focus on refining your investment process. Think about, for example, what you’d do if stocks crashed 10%, 20% or even 50% in 2021.
There’s no knowing just what 2021 might bring – but if you follow the steps I’ve set out here, more investment success could well be part of it. Good luck, and have a peaceful Christmas.
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.