Your emotional state plays a crucial role in your financial future.
When it comes to business, you’re the biggest rival, enemy, and friend. If you overcome yourself, you stand to win. The lessons especially hold when buying and selling stocks, bonds, and private equity.
You are the most significant asset in your portfolio. After every investing mistake, I’m reminded that my emotional state plays a vital role in my financial future. Maybe the most prominent role in my financial future is solely determined by my emotions. I’m investing for the better part of the last seven years, and I’m slowly learning the tricks of the trade.
I make, and I lose money every day. I’m keeping my head above the water and learn from my mistakes. But my mistakes often come down to my poor execution and impatience. I urge to spend the cash balance on my investment account, even if the investment is outside my risk comfort zone.
No matter what kind of fish you are, the pond is plagued with insecurities and emotional distress. The rule of thumb: Stay patient when you’re winning, and execute fast when you're losing.
Poor Investors stay too long when they’re losing and terminate positions too fast when they’re winning. I keep forgetting this golden nougat of financial wisdom. If you think this is simple, I’m reassuring you it’s not. The worst money strategy is to lose big and score small. This only works if you win big and lose small.
You can earn $10 million in five years and lose them in one night, together with your spouse, house, and the dog. Next thing you know, you’re living in a car and barely have money for gas and food. You haven’t showered in so long that you’re used to the stink, and you don’t even care anymore.
But $10 million is a big chunk of money. You can live comfortably for decades with that number. You can school your kids, and you can make your spouse happy. The dog is always thrilled to see you come home. And you feel like you belong, and you’re the hero of this story. The only thing you have to do is not risk it all and escape with a minor loss.
You need guts and glory to escape with a small loss. Imagine your life as an investment. You’re better off wounded than crippled. And It’s a hundred times better to be crippled than dead. But investors are having a hard time dealing with such reality. You come for the win, and you’re not accepting the negative balance on your profit sheet.
Speaking from personal pain: you can win many times over, but you can lose only once. Once your portfolio hits rock-bottom, you are hardly coming back. If you take a 5% loss, you’re going to live to fight another day. Most of investing are just that: living to fight another day. Always choose to live over the crazy risk that maybe has a 0/10000 chance to win.
Don’t gamble with everything you have; luck is not always on your side. Stay patient during good times and protect your assets during uncertainty. Strive to survive when you can’t win.