Happy Friday Distillers! Today’s post is on the all too important (and difficult) topic of teaching ourselves patience as a new investor! It is also a guest post from Casey who is a musician, investor, writer and small business owner. More on his bio below, but for now let’s get right to it!
How to Teach Yourself Patience as a New Investor
After you’ve put together and implemented a strategy for your own investments, there is one more skill left to learn: The ability to do nothing.
That’s a hard thing to do if you watch your investments fluctuate up and down with market conditions on a day-by-day basis. Even if you follow Matt’s two-step method for investing, it’s easy to get impatient (or even anxious) when your portfolio takes a brief dive during a Friday trading session.
Any investment strategy must include patience as a vital component, however. Below are three tips for learning how to practice that kind of patience as an investor.
Buying Right and Sitting Tight
Plenty of investors forget an important lesson: The easiest way to make money in the stock market is by holding stocks, not in buying or selling them. In other words, asset appreciation is your friend, but assets need time to appreciate.
Likewise, any investment you make requires due diligence. Although it’s tempting to go after a stock that people are excited about, you mustn’t be governed by emotions as you make financial decisions. You cannot get frustrated with your stocks or give in to the temptation to sell quickly.
After all, impatience is one of the major reasons unsuccessful investors trip themselves up — and one major reason smart investors gain an advantage. As Warren Buffett says, “The stock market is a device for transferring money from the impatient to the patient.”
There Will Always Be Opportunities
As cliche as, “there are plenty of fish in the sea,” sounds, it applies to investments. “Patient investing is similar to fishing,” Investopedia notes. “There are many fish in the lake and it isn’t necessary to catch every fish that swims by in order to be successful. In fact, it’s only necessary to catch those few that bite and fill up your net (or that meet your trading criteria).”
So, don’t worry about chasing every opportunity you see. There will be opportunities like those every day. Instead, focus on developing your own trading criteria, and don’t go after anything that fails to tick every one of your boxes.
And if you jump the gun on an opportunity? “Exit the trade and wait for it to develop based on your predefined rules and not on your emotions,” Investopedia says. “Take the costs associated with the trade as a lesson, learn from it and move on.”
Set Long-Term Goals
Cabot Wealth Network makes the argument that most investors are slowly becoming short-term oriented — i.e. impatient.
The better move, Cabot’s team argues, is to practice patience and focus on the long term. Looking at those farther-off horizons gives your seedling investments the chance to grow and mature into huge oaks. One way to do this is by setting your sights on more than what short-term gains can offer. Think about how you can grow your investments by 300%, 500% or 1000% over time.
“While the adage that, ‘you can’t get hurt taking a profit,’ has some truth to it, this can also lead to expensive mistakes,” writes George R. Evans, CFA at OppenheimerFunds.
“Let’s say you invest in a company and the price doubles in a year. You may feel pretty smart taking that profit and moving on. However, we’ve seen great companies simply correct a bit, or move sideways for a time and then proceed to double and then double again! The quick sale might ultimately cost you a lot of money.”
Patience is a valuable skill to cultivate as an investor. Always keep in mind that it takes most of us the better part of a lifetime to grow wealth. That may seem like a daunting proposition, but applying the above tips will make it much more possible.
Casey Meehan is a musician, investor, writer and small business owner. His company, Epic Presence, is a content marketing firm based out of Chicago.