You know what’s tough? No, not necessarily stock market crashes, insolvency, or the bashed 9-5 jobs: It is though when your balance and your investment behavior is correlated with your confidence and your ego.
In my observation, cocky people and people with low self-esteem are on both ends of the spectrum of gambling and stinginess. Both are some forms of greed. Yes, even stinginess is a form of greed. I write it in my blog once in a while, and I’m sure I will write it again and again: Physical needs are natural, psychological needs are not.
So if we look carefully about what’s going on, then we see that the financial market is the lightning conductor, the scapegoat, the playground of the above described individuals.
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For people who’s balance is not correlated with their ego, the market is a great opportunity to make good decisions and to evolve financially. They have a plan, a mathematical clean model that adapts to any situation. They also acknowledge economical shifts towards such things as high intensity energy sources and the transition from globalization to de-globalization supporting long-term inflation. And so they act accordingly and adapt their strategy. They think about risk management and the evolution of the market, with a reminder to stay informed on a regular basis.
It’s hard to say which group of participants in the financial world is bigger, isn’t it? The greedy or the rational – what would you think?
Basics are Basics – That’s Why They Are Called Basics
Yes, the last points about observing and acknowledging economical shifts and thinking ahead are advanced moves – and even the average rational participant does not think and act that way; I think this is pretty safe to say. And I myself was intimidated by that idea when I first wanted to join the market, that I had to be “in the knowledge game” all the time. Then I realized, you don’t HAVE to – it is still possible to become successful. For example, by focusing first on learning what NOT to do and where the pitfalls are. By getting familiar with all these (hidden) costs of (active) trading, the cost of debt interests, the effect on taxes, why it is important to focus cashflow rather than on return, etc.
Sound picky and stingy? If so, it’s not what it seems. I’d say it is being reasonable. And being reasonable is the FIRST step to becoming a good investor. So feel free to check yourself: Does a big pile of money make an impression on you? Does it affect your happiness if you don’t have much more money than you have now (or your neighbor)? Are you afraid (I mean “really afraid”(!)) to lose your money?
Yes, the situation is different for people who have to live off their assets because they do not receive pensions or small annuities. In these cases, many investors are even forced to sell their properties because the returns are not enough. Sometimes people are victims of circumstances even though they made more important decisions right than wrong long-term. But if the wrong decisions are just those that caused your portfolio meltdown, there is literally nothing you can do.
The good news though: They are supposed to be extremely rare. Because if you first focus on the rule of not losing money, it is very likely that you will build a diversified portfolio naturally – just out of your inner understanding of how the game works. Even though you know that won’t bring the highest possible returns. You start to build healthy habits. Putting all your money into the next Tesla would result in bigger returns. You know that. But since you are not greedy and emotional stable, you chose the former way. You sleep better. You don’t care if your neighbor sunk all his money into Tesla and drives past you in such a vehicle two days later.
You know the day will come when he will have to sell the Tesla again, when he has put his money into the next Wirecard. Not that you care (well, you can show empathy though), you enjoy your boring but relatively stable all-season portfolio. Maybe you can invite your neighbor to a glass of fine wine the evening he had to sell his Tesla. You are very happy to share your wine with him – especially because you know you have some more bottles in stock. And you are happy to answer your neighbors’ questions about how you could afford all that, “just with your 9-5 job”.
In my „Psychology“ book section I recommend some interesting and very helpful books. It’s funny, these books are in this section since starting this blog in 2021. Even though you would become unshakable if applied all that knowledge whats in them, they are only a fraction of more great literature on this subject. Feel free to contact me for your personal recommendations and I will definately check them out.