MENU

1 Simple Trick to Make You a Better Investor

“In experiments, people readily accept credit when told they have succeeded, attributing it to their ability and effort. Yet they attribute failure to such external factors as bad luck or the problem’s ‘impossibility.’ The question ‘What have I done to deserve this?’ is one we ask of our troubles, not our successes.”

– Psychologist David Meyer

When it comes to remembering the factors for our investing successes or failures, it turns out that we can be quite poor in remembering our own shortcomings.

Take the scenario where an investing mistake is made: More often than not, we would readily attribute it to rotten luck rather than our own decision. Another scenario – as my US colleague Morgan Housel describes – is this:

“Do you remember yourself as a brave, bargain-hunting opportunity seeker when the market crashed in 2008? Check your brokerage statements. You might have been more fearful than you recall.”

Obviously, we can have a tendency to paint a rosier picture of our past investing decisions. Unfortunately, this does not serve us well if we want to improve in investing. As Morgan hints, it may require us put in a little work. And, that work can come in the form of our own investing journal.

Keep an investing journal

An investing journal helps us remember a few things about our investing lives:

  1. Have you been ready to be “greedy while others are fearful?” A quick analysis on our stock transactions over time would keep us honest. If we were not greedy when others were fearful, then we might want to find out what’s holding us back.
  2. Have we bought and sold a stock for the right business reasons? Or were we swept up by the euphoria (fear) of the stock market rising (crashing)? If we documented our reasons for buying or selling a share,  it would tell us if our reasons were robust enough.
  3. Did we manage to think though the potential downsides of owning a business? If we missed something, we might want to find out why. A plain Tug-of-Fools where both a bull and bear thesis are presented for the same company might help here. If you want to find out more, here’s an example of a Tug-of-Fools with casino owner Genting Singapore PLC (SGX: G13). There’s always two sides to a coin.

Foolish take away

If we want to improve on our investing results, it has to first start with understanding ourselves. This is both good and bad.

The bad is that it is not as straight forward as we think. Understanding ourselves in investing matters requires judicious documentation of our thoughts at different points of time to help make us aware of our own subconscious tendencies. Beating the Straits Times Index (SGX: ^STI) is partly down to us improving awareness of our own behavior in the stock market.

The upside though is that this is something that’s within the power of most to do. Also, if we can do it, we may find ourselves better off than before in investing.

To learn more about investing and to keep up to date on the latest financial and stock market news, sign up for a FREE subscription to The Motley Fool's weekly investing newsletter, Take Stock Singapore. Also, like us on Facebook to follow our latest hot articles.

The Motley Fool's purpose is to help the world invest, better.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.