I know, the title is a bit on the misleading side. But, can you blame me for trying to get you to click on the title? 😉 All joking aside, if you’ve done much in terms of investing then you know that pretty much anyone can “guarantee” you success by following their investing strategy.
Whether it be investing in penny stocks or following some foolproof strategy of following certain charts, many if not most of it, will fail miserably at some point along the way. Sadly, many of those failures will occur pretty soon after starting. That said, I’ll tell you the key to success, or at least one of the keys to success when it comes to investing in the stock market.
Are you ready? I hope you’re ready for something mind altering… 🙂
Don’t Follow the Crowd
The key to success, when it comes to investing in the stock market, is to not follow the crowd. I know, quite difficult to wrap your mind around, but I find it’s the simple things that can be so difficult for many of us to grasp at times. Present company included.
By not following the crowd I mean basically two things: not listening to the talking heads, unless it’s for entertainment, and not joining the race when most other investors are running as fast as they can to jump off the cliff. Why should you not join in the crowd? It’s quite simple really. Consider the following:
- It will generally get you nowhere quick
- It will cost you money due to stock commissions
- It will likely impact your returns
I know it can be difficult to stay the course when others feel that the sky is falling but the sad fact is that it’ll only impact you negatively many more times than it will positively. If you need proof of this, consider this recent study which shows that the S&P 500 returned 8.4% from 1989 to 2008, but the average investor had returns of only 1.9%. That’s a difference of 6.5%!! That’s nothing to scoff at and the differential goes back to following the crowd, not abiding by an investment plan, and ultimately giving into emotion with your investing. I know it can be easier said than done at times, but you need to keep your emotions in check when it comes to investing as they can often get the best of you. When you couple that with a feeling like you have to do what everyone else is doing then it’ll get you every time.
So, if you’re to not follow the crowd when it comes to investing what is one of the things you “should” do? I don’t know if it’s a perfect or true opposite, but the thing you should be looking to do instead is embrace volatility.
I know, I hate losing money as much as the next person, especially when it comes to investing. However the simple truth is that the market IS going to go down and you ARE going to lose money. It’s like death and taxes, I can guarantee that it’s going to happen. The old saying goes that the stock market is 90% emotion and 10% reason and it definitely applies.
Instead of running away with everyone else use the volatility to your benefit. Use the volatility to find opportunities to get into solid stocks or funds that normally would be much higher in price. If having a long term approach to your investing isn’t enough in regards to not being impacted by what the crowd is doing then use volatile times to see how you can bolster your portfolio, but at a discount. Assuming you do, you’ll be glad you did in the long run as it’ll help breed more success for your investing.
What do you believe is a key to having success while investing in the stock market? What’s the craziest guarantee you’ve seen in terms of investing?
Photo courtesy of: Lending Memo
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