To become a successful investor, it is important that we live in reality, and not what we wish reality would be. The following three reality checks may help.
- Define What You Don’t Know. Warren Buffett has said, “what counts for people in investing is not how much they know, but rather how realistically they define what they don’t know”1 The reality is that we don’t know what the future will hold; not even economists and market experts know that – despite their overconfident predictions.
- Have Realistic Expectations. As much as we don’t like them, bear markets and recessions are normal and natural functions of capital markets. We should expect them, but not predict them. Peter Lynch found that, “far more money has been lost by investors preparing for corrections…than has been lost in corrections themselves.”2
- Prepare to Feel. Doubt and fear (both fear of loss and fear of missing out) permeate the markets. They can cause great anxiety and may influence us to make hasty and costly investment decisions.
During times of great emotions, you need to step back from the noise and impulses – practice strategic distraction. Review your financial plan and counsel with me to help you make the best decisions and have a successful investment experience.
- Zweig, Jason. (2007) Your Money & Your Brain. Simon & Schuster. New York. Page 118
- Carlson, Ben. (2014) A Wealth of Common Sense. Aug 2, 2014