I have been in the stock market for more than a year now and I gained my experience by reading 10’s of books, 100’s of articles, and making 1000’s of mistakes. And, that very experience gave me a certain mindset that helped me to break through my limitations and to overcome my obstacles.
Of Course, there were times when I was confused, there were times when I was frustrated, and there were times when I was happy for making a profit. But the longer I stayed in the stock market, the more I realized that the stock market is all about what we do despite what we feel. We need to adopt a certain kind of mindset in order to survive and rule the stock market. That’s exactly what this article is going to be about.
Before we begin, let me tell you why you need to adopt a certain mindset in order to survive in the stock market and also why you shouldn’t carry it beyond the stock market.
A mindset is basically framed by a set of beliefs. So, the beliefs that we normally have in our life are contradicting the beliefs that we need to have in order to win in the stock market.
Most people play the game of investment with rules of life instead of rules of the market. That’s the exact reason why most people lose a lot of money in the stock market.
And, the vice versa is also the same. We can’t live a happy life if we are living it by the rules of the market. Market demands us to be emotionless and on the other hand, life is all about emotions. The one thing that both life and market have in common is both of them are unpredictable.
Okay, now coming back to the topic — These are the beliefs that you need to adopt in order to have a winning investor’s mindset:
1. Having hope is good in life but when it comes to the market hope is the worst last thing that you could hold on to. Never try to fight the market by having hope, it would just make you lose even more money.
In other words, if you are optimistic then you are going to lose money. In order to make a profit, you need to stay neutral and act according to the market.
2. Most people have a belief of buying low and selling high would make them profit. But that’s actually a false belief. I know it because I have been there and I have tried it.
When you buy low you will never know when the stock rises again. If you lost 20% of what you invested then you need to make a 25% profit just to get back where you are. If you lost 33% of what you invested then you need to make a 50% profit just to get back where you are.
So, buying low and selling high is an uncalculated risk. We will never know when the market acts in our favor and hoping for it to be on our side every time we invest just makes us lose even more money.
I remind you again, don’t be optimistic.
But after making all kinds of mistakes, I learned that buying high and selling high is much better than buying low and selling high. Because when the market is bullish( rising share prices), it is more likely to go even higher and if the market is bearish( falling share prices), then it is more likely to go even lower.
So, don’t try to predict the market, the market is always unpredictable. But instead, act according to the market.
Example: Many people did the same thing in 2000, buying Cisco Systems at $50 on the way down after it had been $82. Even in the 2003 to 2007 bull market, the stock didn’t even reach $50. After 21 years, it finally reached $54.93(currently while I’m writing this article). Since 2000, the stock has never been seen above $60. This is what is more likely to happen when you buy a stock on its way down. It’s an uncalculated risk.
3. The stock market is always a game of being right and being wrong. And, an individual’s choice decides whether they earn the price or they pay the price. This means you will make money when you are right and you will also lose money when you are wrong.
And, the most interesting thing is — No matter how good an investor is they can’t always be right. Everyone is going to be wrong at some point. But the one who loses the least amount of money As possible when they are wrong is the one who gets to reach the top.
4. Sell your mistakes and keep your wins — Most people do the opposite. Most people sell their wins and keep their mistakes hoping they will be right and earn profit. And, that’s exactly how they lose even more money.
When we are wrong, we feel it. The first thought that goes through our head is getting out of the stock but somehow we convince ourselves to stay in stock so that it could make us profit someday.
But what I say to you is, sell your mistakes as soon as possible without any hesitation and keep your wins longer.
If you’re unaware of how to identify your mistakes then follow this rule: If you lose 7–8% of what you invest then that’s a red flag. Get out of the stock without any hesitation. Selling your mistakes sooner keeps your losses as low as possible.
Note: Set your stop loss at 7–8%, So when it hits the bar it will sell the stock automatically.
5. The Turkey Story: A little boy was walking down the road when he came upon an old man trying to catch wild turkeys. The man had a turkey trap, a crude device consisting of a big box with the door hinged at the top. This door was kept open by a prop, to which was tied a piece of twine leading back a hundred feet or more to the operator. A thin trail of corn scattered along a path lured turkeys to the box.
Once they were inside, the turkeys found an even more plentiful supply of corn. When enough turkeys had wandered into the box, the old man would jerk away from the prop and let the door fall shut. Having once shut the door, he couldn’t open it again without going up to the box, and this would scare away any turkeys that were lurking outside. The time to pull away the prop was when as many turkeys as one could reasonably expect were inside.
One day he had a dozen turkeys in his box. Then one sauntered out, leaving 11. “Gosh, I wish I had pulled the string when all 12 were there,” said the old man. “I’ll wait a minute and maybe the other one will go back.” While he waited for the twelfth turkey to return, two more walked out on him. “I should have been satisfied with 11,” the trapper said. “Just as soon as I get one more back, I’ll pull the string.” Three more walked out, and still, the man waited. Having once had 12 turkeys, he disliked going home with less than 8.
He couldn’t give up the idea that some of the original turkeys would return. When finally there was only one turkey left in the trap, he said, “I’ll wait until he walks out or another goes in, and then I’ll quit.” The solitary turkey went to join the others, and the man returned empty-handed.
Moral of the story: The psychology of normal investors is not so different. They never get satisfied with what they have gained and they always focus on that one turkey that they don’t have instead of focusing on the 12 turkeys that got in. That’s how they lose more than what they have already gained.
6. The Biggest Lie: “I will only lose money if I accept the loss”– I heard this reason a lot of times from a lot of people. Most people tell this to themselves to make themselves feel better and they stubbornly hold on to their losses. They don’t accept the loss, so they wait and they hope for a better outcome.
It’s just human nature. When we are holding onto a big loss, we get influenced by our emotions and we can’t think straight. We tell ourselves that — “It can’t go any lower”. But the longer you hold onto your hope, the bigger your loss is. As I said earlier, cut your losses immediately when a stock falls 7–8% below your purchase price.
7. Patience Makes Profit: Always sell your mistakes and keep your winners. It always takes time for a winning stock to make a large gain. And, the longer you keep your winners with you, the more money you are going to make. Because winning stocks require time to grow. They have the potential. And, the only way that you could take advantage of that potential is by having patience. Patience makes you a lot of profit. Patience does pay you. So, take your losses quickly and your profits slowly.
Conclusion: These are the 7 foundational beliefs that you need to adopt in order to restructure your mindset to win in the stock market. The game of the stock market is not all about skill, even our personality has a greater influence.
The way we control our feelings, the way we think when we take a loss, and the way we act according to the market — Defines our possibilities of winning.
Make as many mistakes as possible and set your own ground rules to avoid those mistakes from happening again. Every rule that you set for yourself slowly becomes your belief and that very belief structures your investor mindset. Remember, you can’t go by your opinions or feelings. You must have specific rules and beliefs and you need to follow them religiously.
Soon, I will publish an article on — How To Choose The Winning Stocks As well. Please follow to be updated for more content on finance, personal growth, and relationships.
Thank You, Have A Nice Day…