Disciplined investing in an undisciplined market

Disciplined investing is essential unless the stock market is to be no more than a game of chance. And, in case anyone wonders, this was written in the trenches on the day the S&P500 index reached a new bear market low on November 13, 2008. That was the day all of Europe, Japan and the U.S. were declared by the OECD to be in recession. And it was written before the third largest bounce in history hoisted the index almost seven percent in the final hour of trading that same day.

If we asked what causes more individual investment losses for the average brokerage or even mutual fund client than anything else, most likely answers would include: 

ü      Poor investment choices; 

ü      Lack of investment experience; 

ü      Lack of investment knowledge; 

ü      Greed, causing increased investment near market tops; 

ü      Fear, causing panic selling at market bottoms; 

ü      Poor advice; 

ü      Broker or mutual fund fees; and 

ü      Companies that go bust. 

The honest might blame themselves; others might blame their advisers. The truth is that not a single one of these things prevents you from being wealthy as an investor. They are largely excuses. Every item on this list can easily be overcome with some very simple disciplined investing strategies. 

Major culprit is no secret 

The major culprit is lack of investment discipline. It’s no secret. Any investment expert will tell you this, but if the answer to successful investing is so well-known why are there so many losers? Why is investment discipline so difficult to maintain? 

After all, discipline is drilled into most of us from an early age.  

I don't know why discipline and investing are mutually exclusive when so many people have little difficulty in being disciplined about other things.

Take sport or games, for instance. Most of us know that bending the rules is far less satisfying than playing the game as it's supposed to be played. You might win but deep down inside you know you won because of cunning, not because you were the best. 

The same is true of investing – yet so many think their way should be better. 

The number of people who lose money investing in perfectly good companies should tell you it is usually not. 

Why is it so hard? 

I puzzled over the conundrum: Why are discipline and investing mutually exclusive for so many? It’s clear that many people just don’t know how to be successful. 

Then it dawned on me: All sports and games have strict rules for us to follow. Can you imagine how chaotic soccer would be without rules? Want to play with an unlimited number of players? Capture the opposing goalie and tie him up? Punch anyone who got in the way? It would be a farce. 

The strategies I teach work and work well if all are followed exactly. In sport, we cannot choose to observe some rules while ignoring others and the same is true of investing. 

Having success strategies – call them rules if you like – gives us a base for disciplined investing. Understanding why those strategies work gives us the discipline to follow them faithfully. 

Successful investing simple, logical 

Hard as it may be to believe, the rules for successful investing are simple and logical. Stocks, as many believe, especially after the sort of downturn we have endured recently, are not an instrument of the devil. The stock market is not a gambling arena filled with crazed speculators, though there are plenty of those. It is not a game manipulated by rich and heartless professionals bent on fleecing the little guy. 

A proper set of rules will, at a minimum: 

ü      Give you the ability to act decisively and correctly under all market or economic conditions. This means no more guesses or crossing of fingers, and that means no more fear no matter what happens; 

ü      Allow you to avoid disastrous losses, even if you should happen to invest in a company that goes broke. The rules should also provide easy and foolproof risk management; 

ü      Make it possible for you to stand on your own two feet without the need to place your financial future in  someone else’s hands; and 

ü      Give you a clear understanding of the basics of investment discipline and creating wealth and allow you to teach your kids and grandkids the clear rules for saving and retiring wealthy. 

Say goodbye to stress 

With this understanding, you will not be confused by conflicting news reports or stampeded into taking inappropriate action. If you are an investor now, you probably felt (and perhaps still feel) a great deal of stress as your stocks dropped dramatically. All that would miraculously end if you used strategies that you could know absolutely would work for you, providing the faith you would need to weather the storms and practice investment discipline. 

Does such a foolproof disciplined investing strategy exist? Just look for future articles and you will learn how to apply them to your own investments.  

Sydney Tremayne is an entertaining speaker and a bestselling expert in investment strategy. He is also a specialist in the recovery of broken retirement dreams and a firm believer that a strong society requires that financial education be part of a child’s early education.