Trusting the Process

Trusting the Process

You have bought a few stocks and set up your investment portfolio, and you feel confident that you have done your due diligence and have constructed a good investment portfolio…then soon after the market takes a violent downturn bringing all your holdings down with it. What does it feel like? How do you feel about it? Consternation, worry, panic…”oh my god, I’m going to lose all of my money.” What will I do? How can I get it back? Your survival (fight or flight) instincts take over and you sell everything. The market then suddenly reverses up leaving you looking on, pulling your hair out the sidelines.

You were so caught up in worrying about an abstract future and regretting the equally abstract past that you forgot to operate in the present. When investing in the stock market, your biggest adversary will be yourself and how you handle your investment situation when things turn against you. Do not focus on the outcome (the future), but instead concentrate on your process (the present). And if you don’t have a process, try to develop one. You have to evaluate the current market environment sure…but only as it impacts your present investing opportunities. Are stocks cheap or expensive? Are there many opportunities to buy companies trading below their intrinsic value? Or are the pickings harder to come to come by.

Focus on the internal workings of the company…management’s ability to allocate investment capital, cash flows from operations, the amount of debt and how it is structured and so on. If you invest in the right companies at the right price, it doesn’t matter what the market does. In the long run and that’s the only time frame you should be concentrating on, you will do fine; that all should be part and parcel of your investment process. Investing in the stock market is primarily a psychological process and having a process in place when you invest is a good way to keep your bearings when things turn against you.

The corner stone of your investing process will come from good judgement, which comes from experience, which in turn comes from bad judgement. Learning from your past mistakes is the investment you will make that will contribute to your present investing process. 

Stay in the present, that's where your resources are...