If you are an experienced investor, you would have probably enjoyed good times as well as bad in your investment lifetime. However, different people will react differently to success and failure. There are people who have turned away from the market after a failed investment while there are also investors who continue to enjoy the process of investing and treat success and failure as part of the learning and development process. The key is in knowing how to shape and toughen your emotional state so that you are equipped to handle the turmoil caused by success and failure in the stock market. By the end of this article, you as an investor will be able to identify:
-the key difference between successful and unsuccessful investors;
-the method for turning failure into success in investing; and-how to recreate and maintain success in investing.
Handling Failure
Admittedly, you can’t always win in the stock market. For example, there will be times when the market dips and your investment value shrinks as a result of a market downturn. Or you may make some wrong judgement calls, burning a hole in your pocket in the process. As an investor, you must learn to recognise the difference between temporary losses due to market down-cycles and mistakes that you make in your investment. In the case of the former, if market fundamentals are still intact and the drop is not drastic, usually no action is required. However, if the losses are due to your own mistakes, then you will need to learn to face facts and push on from there. However, many investors tend to be overcome by fear and regret when faced with failure. If you continue to be stuck in this negative emotion, you may end up being clouded by the fear of losing again, and then lose sight of your original strategy. Some may even have panic attacks, which could lead them to make preventable and regrettable investment decisions later.
Furthermore, not everyone will be able to avoid the emotional impact of a failure. However, the key difference between successful investors and the others is that the former tends to have the ability to recognise and admit the mistakes that they have made. If you are able to do so, you will have a clearer mind to think of the next step to take, which is to minimise losses. Action must be taken to cut the losses, keeping the overall damage to the portfolio at a minimum. In addition, you will also need to review and recommit your investment strategy. If this is difficult, consider seeking the help of professional investment advisors. The most important part here is to do something that will help give you a clearer vision of what you ultimately want to achieve. Only then will you be able to eventually turn your failure into success.
Recreating Success
Just as failure can cause you to slip into despair, winning or earning a profit in your investments can trigger over-exuberance that obscures your judgment as an investor. When you achieve high profits or returns in your investments, there is a possibility that you could become overconfident in your investment skills, thinking that you will never go wrong. This could then lead you to become too aggressive in your portfolio, eventually resulting in disaster.
On the other hand, being successful may also make you too cautious and risk-averse, because you want the successful feeling to last forever. Either way, do not get too preoccupied with success, as this will make you forget your investment objectives and send you on the road to failure. Simply put, to recreate and maintain success, just identify the factors that brought the success, and then capitalise on them!
As long as what you do maximises the value of your portfolio and does not involve excessive risk-taking, success can indeed be recreated!
The Game Plan
Ultimately, an investment strategy that suits your risk profile will help keep you focused and on track. Periodically review your strategy and make the necessary adjustments when you need to, but ensure it remains in line with your current situation. While you may not be able to completely eliminate the emotional impact of your investment decisions, be they good or bad, having proper planning of what you want to achieve and being committed to the plan will lessen your obsessive impulses as you navigate the journey’s ups and downs!
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