There's loads of starry-eyed people that like to start investing and drop hints to their friends like
'I'm in the markets'
'I monitor the markets'
'I read the companies fundamentals and judge its future earnings prospects' etc etc
The problem about this, it usually causes people to have the wrong mindset, that they are the smart ones in this 'serious business of making money' and then emotions start to come into play when they need to explain to their friend about how they go about the 'serious business of making money', which causes them to make the wrong choices.
There's plenty of blogs/strategy's out there that tells you how to 'look' at stocks, but not much about the proper mindset they should have, so here's a short list of stuff that I hope will help people alter people's mindset
Rule #1: Don't lose money
Pretty obvious but most people forget the fact that the majority of retail investors lose money, don't feel the pressure to 'beat the market', you are just a retail investor with a fresh annual report and a stock screener, relax, adjust your expectations
Rule #2: Don't forget rule #1
Another note: Even Warren Buffet places these 2 rules at the top of the list, drill it in your head.
Rule #3: There is no rush to invest
If you got into the markets 'early', bought the STI Index 5 years ago, you would have lost -20%, sticking it into a structured deposit or even your current account that gives you a 0.05% interest, would have allowed you to outperform other people that are in the 'serious business of making money' by 20.05%
Rule #4: Inflation burns you ALL THE TIME
There is the usual argument that if you don't invest, inflation will burn your returns. True, but that is not the main reason you should invest. Inflation doesn't disappear when you invest, its always there. Don't feel pressured to invest because of inflation.
Rule #5: Opportunities appear/disappear everyday
Unless capitalism is going to end tmr, opportunities are going to appear/disappear on a daily basis.
'You will regret the chances you don't take' But that's an obvious statement to make, there's an infinite number of chances, opportunities, but the # of chances you can take is a finite option.
Same as Rule 3-4, don't rush, there will be other chances.
Rule #6: you are not smart
Before buying a stock, take a step back and think. 'Wait why did i just put $5,000 in a stock?' Am i really going to spend 5k based on this simple logic like
'p/b below 1 so i buy?'
'i like the fundamemtals'
'my friends all use the product'
Controversial point here, especially for people that think they are in the I mean the 'serious business of making money' .
You have to think of yourself as just a small little investor, no knowledge and just calculate a few numbers. By investing in a stock, you are making the claim that the market is wrong, the stock price is wrong,everyone is wrong, because I'm in the 'serious business of making money'
Once you have that in your mind, then check your logic for buying the stock. How are you different from the other people?
Don't get me wrong, investors can get lucky sometimes and small investors can beat large investors but usually not with '3 lines of logic'
I drill this in my head everyday 'whats a shmuck like me with an excel sheet buying stocks?' Helps to keep your head sane.