My Investment Psychology and Thought Process Assessed: How To Dramatically Control Your Emotions With Your Investing and Trading Decisions
Perhaps one of my most important notes written yet (On Investor Psychology)
Note: Given the context of the current market, I will make my future mid-month notes more concise so that I can send more updates if necessary. This flexibility will allow me to send thoughtful investment strategy updates in a timely manner.
This post is designed to help all my readers understand how I think about markets and how I deal with emotions in transacting.
I share public snippets of my thinking and more on Instagram and Twitter. Take a moment to make sure you never miss a beat by following my commentary there.
I hope you’re having a great weekend!
The content from this note is content that I would usually reserve for my Private Community, but I believe it has such paramount importance that I’ve decided to share it to the public this weekend.
I wish to discuss a note on Psychology & Mindset, which has long-lasting implications behind how you operate as an Investor/Trader.
Part of my Community is direct actionable & strategy. The other part (perhaps more valuable in my opinion) is a window into how I think, and how I approach investments (and life in general).
As my Community knows, I express my opinions and views on markets in fairly direct terms. I’m quite clear about what names/themes I like and where (via levels) I like/dislike them. I am happy to share how I personally view the markets. That said, just remember that I do so for educational purposes based on my own practical experiences.
I want to take a moment to clarify my stance on concepts that I truly believe in.
I believe it is impossible to sell at the very top.
If I’m short selling I’m not trying to pinch every penny until the very bottom. I take profits on shorts once they achieve ~10-15% or so. If stocks fall further, so be it - it’s not in my personal methodology to hold short positions with long timeframes. If the stock sells off further, I don’t consider that I made a decision to cover prematurely. Once I’ve taken my part of the downside move, that’s it for me. It’s part of my playbook. I have decided to completely eliminate Greed from my thinking. You must form your own playbook.
As a practical example, I only caught a partial portion of the QQQ/SPY downside move as I forecasted SPY to reach 390 (when SPY was 415) and QQQ to be 290 (when QQQ was 310) in my letters to members back in February 2022. However, I do not care that markets could fall further - I cover exactly at my levels. Plain and simple. Must be disciplined, or else I know I will face the consequences. Unless there is a Gap Up, I cut underperforming Shorts with much tighter stop-losses.
I believe it is impossible to buy at the very bottom.
This is why I buy in tranches. Never all at once. I’m also much more long-term about my Longs than my Shorts. I give my Longs much more room to breathe. I don’t set Stops for investing positions. I do set Stops for trading positions.
To use a metaphor to describe markets in this environment, we are essentially in a constant battle zone and war between 930am-4pm ET. Every single day the markets are open, we are essentially in the next day of a tug of war between buyers and sellers.
As a solider in any vicious l battle, my objective is the following:
Plan/Execute ideas when the environment allows me to (when my personal methodology tells me that it’s time for action)
Get out (at levels that I’ve PRE-determined - this prevents Greed from taking place)
Plan for the next idea (have an abundant mindset, and not obsess over this trade or that trade - there are plenty more!)
If you’ve already captured the enemy territory (meaning you’re winning on your Longs or Shorts), you do not need to kill every single solider in the opposing force in order to truly claim victory (trying to short until the very bottom/ or long until the very top).
Doing so greatly, greatly enhances the chances that you may get targeted before you take out all opposing forces. Here’s a practical example:
On the long side (hypothetical):
You have a Sell target of XYZ Stock at 150 for fundamental/technical reasons. Now 125.
It gets to 150. You don’t Sell.
It gets to 175. You think your Methodology was too conservative.
Stock tanks and retraces to 130.
Regret takes over.
On the short side (real example that I went through where I would have been hurt if I didn’t follow through on my methodology):
You have a buy-to-cover (close short) target of SHOP at 40, with it now trading at 50
Stock gets to 40. You cover at 40, as you promised yourself and your plan.
Stock goes to 37, and you don’t regret it.
Stock then goes to 45, and now you remember why you have a methodology in the first place
Special Case: Let’s say SHOP crashes to 25, do I regret my methodology? No!! Just look for next/other opportunities.
It is this precise reason that I ask our members NOT to feel regret after a profitable transaction. As an example: If I shorted, made 10%, and covered - this is excellent for me personally. Stocks go UP over the long-term. Staying short and holding the short over the long-term is a very difficult position to be in.
I understand the emotions that if the stock goes down further, you may feel as if you left money on the table.
Only you can decide what’s more important: 1.) following your own rules or 2.) the feeling the urge to press the trade until you maximize it until the very end.
I know what I’ve decided to do. I have pre-determined targets where I’ll take action, and treat that as mission accomplished once achieved.
If I try to short until the very bottom, I am one counter-trend rally away from erasing everything I’ve earned from being right on the short-side. Same logic applies on the Long side.
For this reason, the way I operate mentally is this:
I remind myself there are PLENTY of new opportunities always being setup
Once I close the transaction, I move on and look for other opportunities. I seriously try not to think about opportunity costs
Always remember that survival is #1 priority
I’m not aiming for home runs in this environment. Just singles. Make money here, and there.
This note was written from a perspective for me to provide a form of mentorship to my readers. If you find great value in what I just said, I’m glad.
If not, feel free to do it your own way. Everybody has his/her way of doing things.
I’m aiming for Singles, not Home Runs.
I’m looking to Wait for Opportunity. Not Chase Impulsively.
When the bull market returns, I’ve got more strategies to scale your wealth.
But until then, I am graciously asking the Community to develop and harness tremendous levels of patience.
When I mean patience, I really mean intense levels of waiting/sitting on your hands type of patience - a level of patience that you may not have previously thought of.
An investor’s performance is definitely NOT just a representation of his/her research and strategy. It’s a representation of waiting, waiting, waiting, waiting some more, and then carefully taking action.
Execution is equally as important as Strategy (if not more).
My current Investment Community does not explicitly cover Execution, and covers only Strategy on my views regarding market/company direction.
Execution is perhaps a topic for a future advanced separate program/tier.
I encourage you to send this note to family and friends who struggle with FOMO and always have the impulse to trade/invest when there’s no clear reason to do so.
Stay motivated. Stay positive. I will do everything I can to help you. Better days will come - I promise!
Tell family and friends to help me grow our network here. And if you believe you vibe with and agree with the principles I have shared, I graciously welcome you to be a long-term member within my Community.
Make sure to follow me on Instagram where I share my views on markets, life perspectives, and commentary on self development.