Investment Discipline is a crucial aspect of investing that occurs after an investor has laid out their Investment Philosophy. It involves several factors, such as the investing strategy, Risk Tolerance, asset mix, and a refined investing process. Once the plan is in place, all investors need to exercise Discipline to see their objectives achieved.

Discipline is the quality of being able to behave and work in a controlled way, obeying rules or standards. In the stock market, consistent decision-making can be exhausting. With numerous styles of investing, perceived missed opportunities, and a lot of noise that can pull investors in different directions. This can cause them to deviate from their initial plan, leading to unwanted outcomes. Sticking to a regime and methodically hunting, selecting, and positioning investments is what separates part-timer investors from those who beat the market.

We don’t have to be smarter than the rest. We have to be more disciplined than the rest.

Warren Buffett

What are the benefits of an Investment discipline?

The benefits of implementing discipline into your investing journey can have tremendous results on the end outcome. Discipline can help reduce or eliminate risk by ensuring your selection, valuation and position sizing process is methodical. The discipline to use checklists and a thesis or certain mental models such as Inversion can help make logical decisions based on sound fundamentals.

Consistency in returns and throughout your process is very important. Having a strict and disciplined approach can avoid very lumpy years of returns. Consistency is very underrated in the investing universe perhaps because it isn’t thrilling enough for most investors to methodically go through the same steps day in and day out.

Discipline can help investors avoid irrational thinking and behavioural biases. Disciplined investors avoid relying on their “gut” and stick to the strategy, not being swayed by “the grass is greener on the other side”.

Investment Discipline applies to a lot of different areas within an investor’s process. You need discipline to buy stocks, you also need a strict sell discipline. You need discipline in rebalancing, to conduct research and thorough valuation. Discipline to hold through market volatility and to offload during euphoria.

How to build an Investment Discipline?

To become a disciplined investor, you need to follow a consistent process while maintaining control and awareness over your emotions. Self-discipline starts with the mastery of our thoughts. If investors don’t control what they think, they cannot control the irrational decisions they make. Therefore, staying focused long-term through ups and downs requires discipline and patience.

The investing steps laid out in this blog start with Psychology followed by Investment Philosophy. Outlining what you are looking to achieve is crucial before jumping straight into finding companies or knowing if it is a buy or sell. You cannot outsource your thinking ever. Once you have reviewed your goals and have a strategy to achieve them, you need to exercise the discipline required to stick to the strategy you’ve put in place.

Emotions can cause investors to deviate from the plan. Remember that the key to long-term success lies in discipline. It’s not about predicting the future; it’s about staying focused on your strategy and adhering to it unwaveringly. By embodying these principles, you can stand out as a disciplined investor and potentially achieve your financial targets.

In Summary…

Success in the markets doesn’t require you to be the smartest player in the game. It requires discipline. The financial markets are changing rapidly, investors are faced with a lot of uncertainty, new technologies, new products, and an abundance of information.

Discipline is crucial now more than ever. It can create an edge over other investors who float along with the market with the undisciplined selection of stocks or buy-and-sell habits. A lot of investors are undisciplined and their results are usually a reflection of this. Behaviour such as changing investment styles or strategies too often, looking to social media for recommendations, not having a thesis or a sell rule.

The principle of discipline is the ability to do things in an orderly and systematic way. With this principle applied investors should maintain the discipline long-term and adhere to the plan. Discipline is what will help YOU achieve your goals.