By Ross Heart
Faced with a challenging investing or trading environment? Having difficulties pulling the trigger? Hitting on all cylinders but worried about when it’s going to end (and how bad)? In a slump? Wondering how you remotely stand a chance against high frequency traders, complex algorithms and trading bots? You are not alone. If you are investing in this market you need to look for any edge you can get.
The immediate response most of us have to gaining that edge? An immediate need for more data or more information. Whether that encompasses more fundamental stock research, another chart with another moving average, or a search for somebody…anybody…to validate our opinion, we are always on the prowl for more, more, more. Sometimes that approach is warranted, but at its root, this search is really about finding and developing more effective decision-making skills.
If you’ve been investing for any length of time, you have probably made a lot of decisions. Your personal history of making decisions likely holds more data, more information, more opinions, more successes and more failures to learn from than you will gather from reading any blog, book or annual report. Go back and analyze your trades as far back as you can. Every single one. Instead of taking Tom Clancy to the beach, take a Schedule D and a stack of trade confirmations.
I would immediately encourage you to keep a journal. The structure of one is determinant of your investing, your style and your experience, and it will vary in scope. If you don’t keep a trading journal, utilize your current trade history as one until you start. Personally, I kept a journal for over three years detailing daily every single position, every transaction, and portfolio profit and losses. It was tedious but essential in my case to help build discipline and confidence, better decision-making skills, expose mistakes, and answer daily question about why positions were relevant.
A quick note on paper trading for newer investors: Paper trading is not in any way similar to keeping an investment journal. The emotions and decision-making process involved in real investing, with real potential for loss vs. paper trading are not even close. Be very cautious with paper trading and virtual stock trading games as they can cloud an investor’s decision-making with false confidences and un-natural emotions that can only be replicated by actual investing.
Consistently updating your journal or making a diligent effort to review your transactions can be a very eye-opening process. If you’re like me, you will see investments you shouldn’t have made, things you didn’t stick with long enough, investments you overstayed your welcome with, and streaks where absolutely nothing worked. You will notice these first because psychologically the losses are much more painful than the gains are pleasurable. Then examine your wins, and what worked when it appeared you could do no wrong. Recall how winning streaks felt, what contributed to them, how they started, what kept them going, and how you invested when they ended. You are Ted Williams studying every single at-bat.
Carve out some of that time you would have spent searching for yet more information and use it to keep an investing journal so you can gather better insight into the head of the decision-maker: you. It is a challenge at times to analyze one’s self, but long-term it’s an essential component in improving your decision making and investing. Recording and analyzing a journal will assist you in that process.
Heart Capital does not offer investment advice via this medium. Under no circumstance whatsoever do these postings, opinions, charts, or any other information represent a recommendation or personalized investment, tax, or financial planning advice.
Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.