The Mind simply means psychology.
Psychology can be split into market psychology and our personal psychology.
Market psychology
Very useful for macro top down investors and technical traders. Can be called market sentiments too.
But absolutely useless if you are a bottom up fundamental investor.
It's too broad a topic but suffice to state here that depending on your psychology and chosen Method, it's something you may want to explore. Especially when you discover you are not a bottom up fundamental investor!
My psychology
We are now in the realm of emotions, prejudices, and value systems.
Before going further, let's do a test.
If you have been working for a few years, see if you can spot a colleague that has 10 years of working experience, but his knowledge and competence is exhibiting 1st year working experience x 10? (I'm praying hard it's not you yourself)
In other words, someone fresh from school in their year 2 would be able to outperform this "experienced" colleague.
Why?
Motivation.
Some of us have Kaizen in-built into our value system. Some just do the bare minimum to get by.
Have you noticed the same when it comes to our favourite sport or hobby?
Something that interests us we spend lots of time improving our game without even being aware of it?
Some call this Passion.
If you don't have Kaizen when it comes to investing, what's the point? Some newbie in their 2nd year of investing will outperform you hands down even if you have been in the market for ages...
No?
You think about it for a moment.
Once we are at peace with who we are, we will naturally flow to the "right" Method and Money Management tools that best suit us.
Of course that depends on how "honest" we want to be with ourselves.
A letter to yourself
Here's one test you may want to try.
Write out your current Method, Money, and Mind tools and strategies you are using. Leave out Money and Mind if you are currently only aware of Method. And so on.
Seal this letter and open it only when your portfolio has suffered a massive 50% realised and/or unrealised loss.
Now its our moment of truth.
Do we still want to DIY? Kaizen! Re-invent ourselves? Can the phoenix rise from the ashes?
Or do we admit we don't have the skill sets to be a profitable retail investor?
If we belong to the active management camp, we may want to give our remaining funds to a Hedge or Mutual fund manager to invest for us. But how to find the 25% quartile that outperforms the index?
If we are biased towards the passive management side, we can buy an ETF or passive index fund. The question now is should we do it in one lump sum or do the dollar cost average way?
See? Even in capitulation, we must still exercise independent thinking!?
How about skipping equities and switching to property? Pay off your existing mortgage and get a 2nd rental property and you can collect rent for extra retirement income? Surely that is easier? (It's a gentle poke if you not aware. Don't be so serious!)
Good one!
ReplyDeleteMay be this Sunday morning, some of us will need to go up to Bukit Timah Hill (Highest point in SG) or Sentosa's Tower (most Southern point) in mainland SG) to think it out loudly and write out that letter.
LOL!
CW,
DeleteI wonder how many got our "poking" in the previous post ;)
There is focus in diversity; and there is diversity in focus.
Steve Jobs has diversified from PC to music (iPod) to telecommunications (iPhone) to the new toy we never knew needed (iPad). All these innovations have a singular focus - Apple fans knew it.
Same for us. We have different multiple roles depending who we interact with each day; but despite the seemingly diversity, we all have 1 focus deep in our hearts.
Whether we are aware of it or not is another matter!
Upon discovering this focus, some change careers, some settle down, some move in the same direction with even more vigor!
Mind is the coldest of 3M's?
DeleteCW,
DeleteAnd hardest to face up to.
Perhaps that's why most loiter at the Method level.
You can always blame someone else...
Agreed.
DeleteOver the years as blogger, I have never received any email asking questions on Money or Mind; it is always questions on Method.
i am always fascinated by our mind. We are all having a mind of our own. We are all having the same mind. We all have a different mind. What about the book "MIND over Money" Extract Below:-
ReplyDelete{I kept a list of the characteristics of confident investors tacked to my wall to share with my clients --- and as a reminder to myself.
Here is a review of what confident investors practice:
1) Being faithful to the style they choose
Researcher James O’Shaunessey looked at a number of investing “systems” and found that they all worked, if you followed them faithfully over time. Value worked the best, but you don’t have to be a value investor to be successful. All other time trade very lightly.
You just have to be consistent. Then wait patiently for Market to “Boom”.
2) Treating investing as normal (I treat it as a lifetime “hobby”)
They understand that investing is neither complicated nor intrinsically scary. They make it part of their daily life.
3) Accepting uncertainty.
They relax, figuring that if things don’t work out today, they’ll work out tomorrow.
4) Trusting what they already know.
If they are in medicine, they will use their knowledge to investigate drug companies. If they are computer programmers, they’ll scrutinize computer companies.
5) Listening to others.
They’re always willing to explore other people’s ideas, but rely on their own judgment.
6) Competing only with themselves
They focus on their own skills, not measuring their returns against those of others.
7) Not being too troubled by mistakes.
They treat mistakes as learning experience.
8) Welcoming the gratification of growing rich.
No shame or guilt for these investors. They see themselves as deserving, so they feel fulfilled.
Trust
Trust is the common element of confident investor practice.
Though spirituality is not much talked about in connection with investing, I believe the two are linked, because trust is, after all, a spiritual concept.
By trusting, we give up the need for complete control, we don’t fear market fluctuations, and we become comfortable. We learn that the “abiding faith” we seek is in ourselves}
Amen.
temperament,
DeleteInteresting take on spirituality and it's connection with investing!
Peace comes when we are comfortable.
Water when still is clear.
In the river, clear water contains no fish. Why?
DeleteWhen the market is clear, every one is clear.
How to make money from others?
CW,
DeleteWater in my mind be still ;)
Mr Market has many ways to take away your money. It is able to exude certain calmness to lure you into accepting it when you thought (Mind) it is safe to get into the clear river.
DeleteLOL!
DeleteTo some readers, after the "stirring" of the water by us, it's now clear as mud!
It is the herd instinct mentality (Mind). Clear and calm river, everyone jump in. A little of stirring it turns into muddy water then everyone no balls to get into it.
DeleteInteresting!
ReplyDeleteThanks Janice!
DeleteGlad I didn't bore you ;)