Don’t be discouraged. You’re in good company. Simply by being in the market, you’ve made a smart choice with your money. It takes financial professionals years to achieve a sophisticated understanding of market forces. You’ll get there, and your curiosity and willingness to learn will go a long way.
The first meaningful step you can take to becoming an informed investor who wisely positions their money is to understand yourself. What animates you as an investor? For most, the answer is emotion and fear. It’s human nature, and it creates a herd mentality that makes it even more challenging to see substantial returns on your investments—buying at the wrong prices, selling at the wrong time.
Behavioral economist Richard Thaler has found that the three factors that affect our economic decision making are cognitive limitations, self-control problems, and social preferences. We have built-in biases that color our decisions, we crave instant gratification, and we don’t want to be the dunce left holding the bag when the bottom drops out. Most investor misbehavior can be attributed to letting these tendencies steer the ship, rather than a disciplined investment strategy that’s risk minded, adaptable, and allows you to be cautious while others are greedy, and see opportunities where most see fear. Overcoming these hard-wired challenges begins with identifying them and recognizing how they affect the choices you make with your money. If you can do that, you’ll already have a leg-up on many investors, and be in a better position to navigate the stock market successfully.
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