It’s important to know your behaviour and emotional responses towards money in order to invest successfully. Improving your investment philosophy and investment processes can help eliminate irrational thinking. However, there are a few other areas that can help you recognise your behaviour and how to overcome it. The first step is to be aware of the areas where you need assistance and to honestly self-evaluate. It’s important to know what sets you off and your weak areas, such as investing addictions and anxiety.

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Controlling your environment and eliminating false choices are two areas that can make a significant difference in the way you invest. Once you have a deeper understanding of your investment goals and style, it’s important to find the right investment style and environment to support you. It’s common to see investors who have a great investment philosophy, but then do the opposite or practice a different method. By being aware of your behaviour and taking the right steps, you can become a better investor.

Know thyself

Socrates

Know your behaviour around addiction and anxiety.

Investing can be addictive, especially if you are passionate about markets. However, it is crucial to monitor this addiction in the long term as it can create a lot of anxiety. This is about creating healthy investing habits. I have written a separate piece about “Ignoring the Noise,” which is about filtering the investment universe.

If you honestly consider the scenarios below, you will realise that at some stage of the journey, we’ve all ticked the boxes.

– When the price of your stock goes up, your heart races, and you start thinking about whether you should bank profits or hold out for more.

– When the price moves down, you feel disappointed and regret not selling earlier.

– You check your brokerage account frequently, refreshing the page often.

– The first thing you do in the morning is check your portfolio after drinking water.

– It’s hard to sleep when your portfolio is in the red and euphoric if it is in the green.

– Joe the neighbour said he made a killing in XYZ company, and you feel FOMO (fear of missing out) and want to buy it too, become anxious that it may be too late.

– You read every piece of financial media that comes your way, fretting whether the stories are true.

All these scenarios have an emotional effect not only in that exact moment but also over time, making you increasingly anxious. This can lead to irrational investing decisions, and making financial decisions under a stressful and addictive manner does not end well, ever. Nothing is worse than indecisiveness when it comes to investing.

Once you are aware and know your behaviour around these areas you can start to create healthier habits by controlling your environment.

Create healthier investing habits.

One of the best things you can do when you’re feeling anxious as an investor is to reflect on your goals, strategy and remind yourself that this is long-term.

It is essential to understand what you can and can’t control in the markets. Sometimes, it’s better to take a tech break, log out, and stop watching the ticker. Instead, reflect on your strategy and investment philosophy. Talking it over with other investors can be helpful as well. Review the progress you’ve made on your journey and investment thesis. Understanding what you own is an excellent way to eliminate risks.

Usually, your gut feeling is anxious for a reason. However, it’s never a good idea to invest in companies based on gut feel alone. So, if something you own is starting to make you nervous, open up the hood and do an inspection.

If it is incredibly stressful, perhaps you’ve risked too much, and it’s time to reassess what’s at stake. If you cannot sleep, the markets are making you anxious, and it’s affecting your life, it’s an indication that you are risking too much. I know from experience that when my personal life was disrupted due to uncomfortable risky positions, I reduced those positions, booked some losses, and was able to clear my mind and think.

Know your behaviour to help control your environment.

Remember that controlling your environment is not limited to filtering out noise. It’s about creating a positive environment that aligns with your behaviour. Building a brick wall of healthy habits around your mind and avoiding situations that can disrupt your behaviour is crucial….just like a big MOAT around a company.

Are you an anxious investor who constantly checks your brokerage account? Consider logging out and uninstalling the app. Protecting your mind is essential as it helps you find great investment opportunities over an extended period. Set specific times to check your account.

If you’re prone to gambling and taking unnecessary risks, avoid pump-and-dump groups and social media forums that promote speculation. Create an environment that protects you from making poor decisions.

If you’re a fundamental investor, avoid contradicting your strategy by following chartists. If you’re a long-term investor, avoid short-term trading subscriptions or websites that promote over-trading. Stick to investing in companies, not stocks.

Environment refers to what you feed your mind, which can either contradict or fuel your focus and anxiety. Surround yourself with a helpful environment that aligns with your investment goals.

Don’t surround yourself with the wrong environment, as this can diminish your opportunities for success. It’s not just about confirmation bias towards companies and aligning with like-minded people. If you practice value investing, shape your environment around that to hone your skills over a lifetime.

If you say you’re a passive investor but actively pick micro-caps with no idea, something in your environment may have caused you to lose focus.

As we learn and grow, our investment styles will continue to evolve. However, it’s essential to adapt and challenge ourselves while aligning with a supportive environment. Choose where you go for information wisely and surround yourself with resources that can help you achieve your investment goals.

False Choices can ruin investors.

Investing is a world where false choices are everywhere. But here’s the thing: it doesn’t really matter if you mix it up and have both. The key goal is to compound capital at the highest rate of return without taking on excessive risk. This creates long-term wealth. So, find what works for you.

• Are you a Value or Growth investor?
• Do you Passively or Actively invest?
• I am a quant not qualitative investor.
• 20 positions are better than 30.
• Small-caps or mega-caps?
• Do you drink Coke or Pepsi?

Why not both?

If you’re a new investor, don’t apply a label to yourself. Yes, if you find a certain style that suits your personality and works, learn as much as you can and stick with it. But if it doesn’t work, adapt, relearn, and change. Investors can be quite stubborn about their approaches to investing, but it’s important to keep an open mind.

“When the facts change, I change my mind…

John Maynard Keynes

There is no single path to achieve success in the financial markets, and no one has all the answers, not even the most renowned financial companies or experts. There are various types of investors, including billionaire value investors, growth investors, deep value investors, arbitrage investors, venture capitalists, hedge fund managers, private sophisticated investors, small-cap investors, blue-chip dividend players, and many more.

In Summary…

These intangible ways can help you gain an edge when it comes to your behaviour. Creating the right environment and eliminating false choices have helped me significantly. I stick to my lane and plan, but I’m always open to feedback, opposing views, and new ideas. I’m aware of my behaviour (most of the time), and I try to create an environment that promotes longevity and sustainability.

While these pointers may not be what investors would typically read, small tweaks in our behaviour can have dramatically different results. Consider the tiny bad habits that creep into your life. After a while, those habits take over. The same applies in reverse. Know your behaviour, create healthy habits within your investing environment, and keep an open mind.