Try this thought exercise, which is an adaptation of a common experiment.
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The path to becoming a wise investor
Like many other things in life, becoming a wise investor does not happen overnight. Though some may be born with either the temperament or possess the analytical ability that gives them an inclination towards investing, to believe that one can become a successful investor just because he understands how to buy and sell stocks is like imagining that one can execute a war plan just because he knows how to shoot a gun.
Regardless of how talented an individual may be, investing wisely demands mastery of certain skills that usually takes time. For those with a trained investors’ eye, and years of experience in markets, the stages of “investor maturity” can be seen in others quite easily.
New investors often start out with wild, hyperactive buying and selling. They are attracted to popular names, the counsel and “expertise” of commentators, and seduced by the idea of striking it rich. They move haphazardly between hope and fear and simply put, trade too much.
Inevitably, their unsteady behaviour leads to steep losses and they eventually realize that investing is more complex than it may at first appear. After experiencing some pain (and financial losses) they learn the importance of reasoned restraint when investing.
As novices mature, (becoming investing adolescents), they begin to make more deliberate choices. What they still lack however, is a systematic approach that ties in to an overall game plan that gives coherence to their actions. In this stage, the appeal of “quick wins” still holds sway and exerts influence. Adolescent investors don’t as yet realize the importance of organized buying and selling that exceeds day-to-day price changes and periodic bouts of euphoria and panic. As they mature further, they begin to recognise the importance of sound frameworks that help decipher the complexities of investing.
As investors move from an intermediate level to advanced one, they learn that investing wisely is not just about clever buying and selling. They recognize the value in playing for positions such that each trade reinforces the foundation of their investment program and gives them a platform from which future investing decisions can be executed successfully.
The very best investors are the ones who, through experience and reflection, build a conceptual framework and stick to it as they navigate markets. Such a framework allows them to be both deliberate and opportunistic as the need arises. The path from investing ignorance to wisdom can be an arduous one.
Not everyone who sets out on the journey ends up in the right place. Those who grow into the right mindset however often find that the self-knowledge they gain along the way pays very good dividends.
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