Good Investing is a Solitary Practice

Good Investing is a Solitary Practice

When I first started to invest I felt compelled to talk about the stocks I just had just bought. Looking back I was probably looking for confirmation of my investment ideas. After I experienced a few early successes I sought out investment blogs where I voiced my opinion on my stocks and the market in general. This all was fun of course but looking back it was dangerous as well. My ego wanted everybody to know how well I was doing so I could thumb my nose to the world and everybody else who disagreed with me. Consequently, when I hit a rough patch, I would get down on myself and even irritable when the stock market wasn’t agreeing with my assessment of the stocks I was holding. Arguments ensued with other investors where things quickly gravitated to a war of egos. This is all part of the learning curve of investing in the stock market.

Sometimes I would sell an under performing stock only to watch it soar up afterwards (recency bias) or an out performing stock which I held would top out and crash back down. This would play havoc with my emotional equilibrium. I learned the importance of the psychological aspect of investing and that you will not always be right about everything you buy. Mistakes will happen, investing is an art form not a science where you have to go beyond what the hard numbers mean. As time passed the market gradually taught me its lessons.

Good investing is a solitary practice. This is the very antithesis of the way the financial industry operates where teams of investment committees and box-checking consultants seek out compromises that gravitate towards a consensus of doing the safe non-threatening thing so as to protect their reputation and in so doing their jobs. The result is mediocre performance and index hugging (we can all go down together but I can’t let them go up without me). The individual investor at home who is focused on one portfolio made up of his own money has a huge advantage in this area as long as he is psychologically squared away within himself.

Volatility is your friend, not the enemy and becomes even more of a friend when you extend your time horizons. But to live with volatility you have to have the courage of your investment convictions. This usually means you have to have to believe in what you are doing and your investment philosophy. If you are going to hold for the long term you should try to partner yourself up with management teams that have that same mindset. Seek out share-holder friendly management that have a history of allocating the companies capital productively over time.

Volatility will also present you with investment opportunities where good companies with a long term focus get sold off indiscriminately when they miss their quarterly numbers. Or maybe they will fall victim to a market or sector sell-off where the baby gets thrown out with the bath water. The astute solitary investor will deal with the uncertainty of the moment and take advantage of the opportunity the markets presents himself with and buy up these sold off stocks which come with a built-in margin of safety.

In time the solitary investor will learn that his greatest resource lies within himself. Once he realizes this he will have a greater ability to utilize the resources that lie outside of himself.