Investing is a discipline, and the fear and greed cycle is part of the discipline. The first and most important reason for failure in investing is that many people become too greedy. What is it about human nature that makes everyone buy into the market when it is at its peak?
Investing is a discipline, and the fear and greed cycle is part of the discipline. The first and most important reason for failure in investing is that many people become too greedy. What is it about human nature that makes everyone buy into the market when it is at its peak?
Handling money when there are abnormal fluctuations - both increases and decreases - is a tricky business and this is often where the benefits of discipline are beneficial to the investor. You need to develop a strategy that removes sentiment from your decision-making process. A technique that has worked well for me over the years is the art of re-balancing my portfolio on a regular basis.
The re-balancing process is not easy and takes a lot of discipline. How do you sell certain shares or property when they are performing so well? It is at times like these that fear and greed can get the better of you. However, if the discipline is instilled, then investment success is bound to follow.
The question you need to answer before beginning the process is: "How much risk am I prepared to take?" This will determine the asset allocation. Once this has been determined, you need to review your portfolio by examining where the balance of your portfolio has changed. Emotions have nothing to do with this - it is a clinical exercise that ensures that when a downturn comes, some profits will have been taken as a result of re-balancing. This process will always ensure that you will tend to sell into strength, simply because when your portfolio is overweight in an asset class it has usually come about because of good performance. Conversely, if your portfolio is underweight, the reason is usually because of a fall in the value of that asset. Not many investors can do this successfully because onebattles to buy when trends are down (fear), and sell when values are up (greed).
To further illustrate the importance of the role that discipline plays in success and "luck" I use the example of a highly successful salesman who has fallen on hard times. Why has his success been short-lived? Often once we become successful we stop doing the things that made us successful in the first place, which usually required discipline. Once the salesman was doing so well, perhaps he stopped cold calling, which is what made him so successful in the first place.
I also have my own disciplines. I am a regular and fanatic gym goer and watch my weight continuously. I am also a successful investor because I practise what I write about. I impart the knowledge I have gained over the last 45 years in this industry because I would like to change investors' ways of thinking and also share the success that I have achieved through my own knowledge.
l Hirsch is a director of Pioneer Financial Planning. Visit www.pioneer.co.za
Investing is a chancey business that needs discipline
Investing is a discipline, and the fear and greed cycle is part of the discipline. The first and most important reason for failure in investing is that many people become too greedy. What is it about human nature that makes everyone buy into the market when it is at its peak?
Investing is a discipline, and the fear and greed cycle is part of the discipline. The first and most important reason for failure in investing is that many people become too greedy. What is it about human nature that makes everyone buy into the market when it is at its peak?
Handling money when there are abnormal fluctuations - both increases and decreases - is a tricky business and this is often where the benefits of discipline are beneficial to the investor. You need to develop a strategy that removes sentiment from your decision-making process. A technique that has worked well for me over the years is the art of re-balancing my portfolio on a regular basis.
The re-balancing process is not easy and takes a lot of discipline. How do you sell certain shares or property when they are performing so well? It is at times like these that fear and greed can get the better of you. However, if the discipline is instilled, then investment success is bound to follow.
The question you need to answer before beginning the process is: "How much risk am I prepared to take?" This will determine the asset allocation. Once this has been determined, you need to review your portfolio by examining where the balance of your portfolio has changed. Emotions have nothing to do with this - it is a clinical exercise that ensures that when a downturn comes, some profits will have been taken as a result of re-balancing. This process will always ensure that you will tend to sell into strength, simply because when your portfolio is overweight in an asset class it has usually come about because of good performance. Conversely, if your portfolio is underweight, the reason is usually because of a fall in the value of that asset. Not many investors can do this successfully because onebattles to buy when trends are down (fear), and sell when values are up (greed).
To further illustrate the importance of the role that discipline plays in success and "luck" I use the example of a highly successful salesman who has fallen on hard times. Why has his success been short-lived? Often once we become successful we stop doing the things that made us successful in the first place, which usually required discipline. Once the salesman was doing so well, perhaps he stopped cold calling, which is what made him so successful in the first place.
I also have my own disciplines. I am a regular and fanatic gym goer and watch my weight continuously. I am also a successful investor because I practise what I write about. I impart the knowledge I have gained over the last 45 years in this industry because I would like to change investors' ways of thinking and also share the success that I have achieved through my own knowledge.
l Hirsch is a director of Pioneer Financial Planning. Visit www.pioneer.co.za