“Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ… Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.”
In Part 1 we considered the first of the biggest wealth creation mistakes Doctors make: Procrastination: https://doctorswealth.com.au/the-biggest-wealth-creation-mistakes-doctors-make-part-1/
In Part 2 we explore the second biggest wealth creation mistakes Doctors make: Poor choice of investment strategy: https://doctorswealth.com.au/the-biggest-wealth-creation-mistakes-doctors-make-part-2/
Now let’s consider the third:
Not remaining disciplined and managing their emotions
You can avoid the first 2 biggest mistakes, and stop procrastinating and put in place the world’s best investment strategy.
However, if you can’t stay disciplined, manage your emotions and stick to your investment strategy, this could all mean nothing!
Despite the media’s commentary that “if an investor had ‘bought’ the bottom of the market,” the reality is that few, if any, actually ever do.
In fact, most investors struggle to stay disciplined and often fall into the trap of buying high and selling low. This creates the ‘behaviour gap’ between long term investment returns and actual investor returns, like in the picture above.
This is easier said than done when news headlines are screaming:
- “Sharemarkets hit new record highs” and your friends are talking about how much easy money they’ve made from shares recently, or
- “Sharemarkets fall in record one day loss”, everyone you speak to is panicking about what this means and you are losing sleep thinking about how much you’ve “lost” (only on paper unless you sell your investments and crystallise your losses).
“Be fearful when others are greedy and greedy when others are fearful”
Most people struggle to separate their emotions from investing. Markets go up and down. Reacting to current market conditions may lead to poor investment decisions.
The best investors understand this though and act accordingly.
So what are some strategies to avoid this?
- Focus on the long term and your goals.
“In the short run, the market is a voting machine, but in the long run it is a weighing machine”
Short term market movements can’t be managed. Attempting to can lead to reactive, emotional decisions that distract you from your long term goals.
Does it really matter what the markets do over the short term, if you have invested in good long term investments for the long term?
- Turn off the white noise
The media industry is designed to create attention-grabbing headlines, which helps them sell advertising and subscriptions.
Everyone has an opinion too, like friends, family, colleagues or your Uber driver.
Instead of paying attention to a lot of this white noise, best go do something you enioy and get away from all of this!
- Maintain some cash for your near-term spending needs and for emergencies.
It is much easier to stay disciplined and not get emotional if you have no need to sell good long term investments if markets fall.
You may even use some of this cash to take advantage of market falls to buy undervalued investments.
- Be greedy when others are fearful
Many Doctors are in a very fortunate position where they have relatively high incomes with are not impacted significantly by market or economic downturns. In addition, for many Doctors, more work is available if they wished to work longer hours and make more money.
This is not the case for many other Australians, especially in an economic downturn.
Thus, Doctors could invest more if there are market falls to take advantage of buying undervalued investments and benefit when markets eventually recover.
- Get help
Discipline is important, but most of us can’t do it alone.
That’s why we’re here. To build a tailored investment plan made for you. And when times are challenging, we’re here to help you disciplined and ontrack. We also can help you see through the white noise and media hype.
For most of us, the biggest obstacle to reaching our long term financial and lifestyle goals in not the market itself – but our own behaviour. We aim to address this, keeping you disciplined and on track.
Your behaviour as an investor matters a lot – stay disciplined amongst market fluctuations and all the noise out there.
A smart investment strategy that’s right for you + patience = great outcomes
Pictures by Carl Richards