Develop the right investment mindset for success

  • 04 Jun 2024
  • Read 6 mins read

Habits for a successful investment mindset

We often hear the term “right mindset for investing” or the right mindset for trading. What does this right mindset actually mean? It is about the mental and psychological constitution of the investor. Investing is not just about skills and analysis, but also about mental and psychological characteristics of the investor. Right mindset is as important as attitude in your life. With the wring attitude and the wrong investment mindset, you are automatically limiting your progress. In the long run, it is the right investing mindset that will see you through tough times and help you emerge as a truly successful investor.

 

Equanimity and poise hold the key to mindset

Equanimity and poise may look similar, but they are quite different. Let us first focus on mental equanimity. It is the ability to think clearly when markets are volatile. You can say that such investors think with their head and not with their heart. Mental equanimity is the balance that you maintain when markets appear to go against you. Stock markets are driven by fear and greed. Equanimity helps you to think rationally and be greedy at low valuations and fearful at peak valuations. It can be counterintuitive, but it works. 
Poise is slightly different from equanimity. Poise is about the state of mind in which you make investment decisions. Here are some basic rules. Avoid important investment decisions in a state of anger or frustration. Investment decisions are best avoided in a state of anxiety. Never take serious investment decisions in a state of enthusiasm or optimism as you are likely to overreach yourself.

Go after methodology, not returns

In investment, there is the process and there is the outcome. The problem starts when you obsess more with the outcome and less about the process. Remember, it is the process that you have control over and that is where your focus should be on. The right mindset is about focusing on process over returns or outcomes. Focus on the methodology of how to identify stocks, how to screen and on what parameters, how to leverage on moat and margin of safety, how to add value by tweaking entry and exit levels etc. These constitute investment processes or methodologies. If you focus on perfecting this methodology, the outcomes will automatically be favourable to you.

Self-driven and self-taught is the right mindset

It is said that the stock market is a great teacher but charges a heavy fee. However, to really learn the nuances of the market you must be an avid observer and a self-driven learner. The best way is to listen intently to what the market is trying to tell you. We often complain that you lost money due to volatile markets. That is the wrong mindset. The market only gives signals. The onus is on the investor to read these signals and tweak investment strategy appropriately. One of the simple ways is to start documenting trades, the logic and the performance on a daily basis. That can be a starting point for your self-learning journey.

Stay humble, accept mistakes, take Losses

These are 3 golden rules to get the right mindset while investing in markets. Be humble and stop believing that you can outsmart the market. Nobody does that on a consistent basis. The trick is to be humble enough to admit that you were wrong and take appropriate corrective action. Quite often, your overconfidence may lead you to either average the position or try and outsmart the market. That is a real mindset problem when you are investing. When you are wrong, juts take losses and walk out.

An ounce of action is worth a pound of planning

There is only so much of war training that simulation can give you. When you are fighter pilot, the buck stops with you. Similarly, in investing, you can create the best of plans on the drawing board but you actually need to action them. There are so many things about the stock markets you only learn once you start trading with real money. Skin in the game is a different ball game altogether in the stock markets. Let your mindset be action oriented rather than indulging in too much finesse. Action is what co