Effective Behavioral Strategies That Help To Invest Successfully

Oct. 25, 2017 9:36 AM ET
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When I was a student, I had a rule that helped me take a place among the top graduates of that year. It is simple and yet not everyone is willing to follow it. If I knew exactly how to cope with an assignment, I didn't do it. There are tons of papers that students have to write but none of them are helpful. I spent my time only on those assignments that did not seem to be easy. This is when your brain works on its full speed and you can get a very interesting insight while coping with a challenge.

Delegation of Tasks

There are many content writing sites that can do editing and proofreading for you, so why waste your time on it? There are tons of blogs where you can find tips and tools to cope with any task twice faster. This strategy still helps me make informed strategic decisions without having to focus on every little problem. Delegation is my key to success when it comes to investing. If I know that someone can do a better research or has an access to the information I need, it is easier to ask for their help. I'm writing about delegation because some of the investors I know find it somewhat embarrassing to ask others for a favor. In reality, this approach can save time and money.

No Gambling

Investing is not as fun as playing Black Jack. It certainly pumps the adrenaline levels up because the risks can sometimes be very high. But when you know what you are doing and you back up every decision with a rational and thorough analysis, it is not gambling but a strategy. Calculate the risks of every new trade and use various tools to understand when and where to buy. I find starc bands to be helpful and Fibonacci retracements can come in hand from time to time as well.

Understanding Your Nature

There are five behavioral models you can analyze to decide which one fits your personality best - individualist, adventurer, guardian, celebrity, and straight arrows. It will help identify your preferred investment approach. Would you be willing to follow the latest investment trends (celebrity) or you'd better choose the option with the lowest level of risk (guardian)? Understanding this will make it easier to follow the instincts without looking for compromises with yourself. It will also make the choice between the value investing and growth investing less stressful.

Questioning Everything

You need to question the information you get to avoid being overconfident. We all know where that can lead you. The idea of a trader being too confident of every decision may result in more frequent and less profitable trades. When you think you know everything about a company and its value, it's easy to make a false call and lose money. You can choose to trade less but invest more money. Make sure to double-check the sources you use and take some time before you make the final decision. Don't make your efforts result in a weak portfolio diversification.

Broadening the Horizon

To continue the topic of underdiversified portfolios, there is one behavioral pattern that you have to keep in mind. Investors can sometimes get influenced by the place where they live and work. You may not realize it but the effect is there. Some invest in their employers, other choose the companies nearby. It's become easier to spot an emerging startup around the corner as they seem to pop up every minute. The series of such decisions will lead to a high level of idiosyncratic risk which is not something you need in your portfolio.

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