Investing is More Mental Than Anything Else

by | May 12, 2020 | General | 0 comments

Finding investment ideas and analyzing them is the easy part. There are lots of books and resources on this subject. I know because I wrote 10 books on this subject.

The hardest part about investing is mental. It is seeing your hard earned dollars go down in a matter of days. It is managing your friend’s money and seeing it go down. It is telling your friend about an idea and seeing him lose money. And don’t even tell me about involving family.

Today, I received an email from someone that was a former subscriber to my newsletter that I no longer write. He informed me that some of my picks set him back for years. I felt really bad. Actually, I felt so bad that I got a back spasm. I am not making this up. My back is killing me.

I also thought. Maybe I should just stop writing about investment ideas because I don’t want to hurt people. They think that just because I write about something, it will go up immediately. It might never go up. It might turn out to be a bad idea. That’s why everybody should do their own due diligence.

I am writing this post because you might have a very distorted view of what investing is. To make a lot of money, it is a mental war. At least, this is what investing has been for me.

When I started investing in 2008/2009, I started with $10,000. In 2009, this amount went to $100,000. It fluctuated around this amount for three years. Then, it dropped to $50,000. Then, it went to $500,000 only to drop to $70,000. From $70,000, it went to $1,100,000. Now, it is down hugely again because of this damn Coronavirus.

Do you think this is easy for me to see my net worth fluctuate like this especially when I don’t really have a stable job? Hell no. But this is part of the battle.

When I buy a stock, any stock, I expect it to drop 50 percent. That’s my mental preparation. I don’t think I ever bought a single stock that it did not go down first before it went up. Never.

So if you are having a hard time dealing with volatility in your portfolio, then maybe stock market investing is not for you. Maybe you just need to buy an index fund or large cap stocks like Microsoft or Apple. This strategy will not cause you much pain but it will also not generate huge returns.

You can’t have huge returns without mental pain. When it feels good, it will probably not return much.

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About Mariusz Skonieczny

Mariusz Skonieczny is the founder of Classic Value Investors.