Published on April 5th, 2017 | by Guest0
How To Teach Yourself Patience As A New Investor
Patience isn’t only a virtue; it has dollar value.
Investors know this and use patience in all stages of investing, from the initial research through the planned term right to exit. It’s hard to stay the course when market swings cause speculation, stirring fear and excitement. But rushed decisions can be fatal to investments.
And these days, it’s even easier especially for first time traders to move too fast.
Apps like Robinhood make trading incredibly easy and affordable. While these apps can be great tools, with real-time market data and automatic notifications of splits, they can also make investors more susceptible to emotion and impulse, and thus subject to making dumb financial moves.
The Importance Of Patience As An Investor
Long-term investments, which are usually periods of more than three years, demand a radically different perspective from those of less than 18 months. Early stages may not show gains or you could even even see losses. Your key driver, however, must be patience so that you ultimately achieve your main objective of achieving the best results possible.
By injecting patience into your role as investor, you’re paving the way for investment fundamentals to operate. These include allowing earnings and dividends to perform as they should.
Being patient also allows you to rely less on investor sentiment. Reacting too quickly to information such as earnings ratios and higher prices can cause you to lose on your return in the long term. Additionally, only time allows for compounding interest to grow and make its real worth felt.
Investment consultant Todd M. Wenning suggests that a “behavior gap” exists between investors’ returns and their corresponding investment’s returns. In other words, the difference in investment performance is greatly attributable to investor behavior. This includes basing their trading strategy on news and speculation and foregoing long-term, low-risk investments for a fast and furious buy-low sell-high pattern.
After all, simply the act of purchasing stock takes time, involving research, cautious consideration and patience. Studying a stock’s fundamentals and past performance can help identify the ideal entry point. Patiently sticking to predetermined investment strategies may mitigate losses that can result from reactive investing and lack of commitment.
The Temptation To Chase Trends Or Other Bets You Feel Are A Sure Thing
Even if you agree that having a patient mindset is an essential for any successful investor, the temptation to chase trends is attractive. This is especially true when an investor is strapped for ready cash and trying to see profits quickly.
The inadequacy of capital can make you willing to invest quickly in any project you think will be profitable, without performing your due diligence in terms of research. In many cases, investors who do so end up losing the little cash they started out with.
3 Tips for Building the Discipline Needed To Be a Patient Investor
Trader Dennis Gartman says patience is required through the entire lifecycle of an investment, from entry up to exit. The following three tips can guide you to building the discipline needed to be a patient investor.
Wait For the Entry Point
After you’ve completed your stock research and identified your price point, you need to wait for the price to hit that level. Putting in an order too early and above your planned entry point can cause you to lose profit. Invest according to your researched plan and don’t react to unpredictable events that seem to be better opportunities.
Give It Time
The market naturally flows up and down, and you should not react to either direction. Give your stock enough time to develop, and never sell your stocks when their values fall. The next development could be a rapid increment in the value of the same stocks.
Know When to Sell Stocks
There are instances that — despite all due diligence and patience — your stock rarely moves. When this happens, take at second look at your trade analysis. If you find that you were wrong in your initial assessment of the investment, consider selling the stock. If possible, of course, wait until it recovers for you to at least make back the money you invested.
About the author:
For investment strategies and personal finance tips, follow Casey Meehan at his blog Stock Hax. Patiently.