Building an investing process that can make your investing activity work towards your goals is not only possible - it's actually relatively straightforward. It also requires work on your part and a good portion of deliberate thinking as well as contemplation of your emotional reactions and desires. It's simple, but not easy. Boring? Yes. Effective? Oh yes.
Think of it as carefully preparing for an important meeting. Researching every attendant beforehand. Knowing their names and backgrounds. Thinking about what each participant might want out of the situation. Their social dynamics. What leverage you have.
We all know preparing works
The result with doing that with investing will be that you'll get something that nobody will be able to give you: the satisfaction of investing on your own. According to your beliefs. And along with the emotional certainty that you are in control of your situation regardless of what the market decides to do.
And with this solid foundation of your own convictions your odds of above average returns in the long run are greatly enhanced.
Because now you have a strategy for dealing not only with the market but also with yourself.
Let's run over that again: by laying the foundation of your investment process you can both feel better while doing it and end up with more money.
And the cost: a chunk of upfront patience to sit your ass down and examine yourself and your situation and then, rationally, setting yourself up to win.
Okay, let's get started:
To build a complete investing process I believe we must answer some form of the below eleven questions. Together they form your Investing Philosophy, your Investing Strategy, your Investing Tactics and your Investing Audit.
When done this is your investing process or framework. The foundation of thought that supports your decisions.
That's nice, Ulrik, but I'm way too busy to do all of this boring contemplation.
Too busy or too overwhelmed to do a full audit on your investing behaviour, thought patterns skills and strategy? Let me put it lightly and say that you are not alone.
In fact I think we all at some level realise that we'd become better investors if we sat down and did some preliminary strategy work. But the sheer volume of 'stuff' that we could, might and perhaps should think about before we even invest a dime makes our eyes glaze over instead. And then we don't do any of it. At all. Ever. We just start investing and then think that we'll learn along the way. I'm the first to admit this.
And then I realised something that changed everything.
You don't have to sit down at think _through_ all this. At all.
Each of these questions are to some extend independent of the others and even some serious thought on a single of these is likely to make you a better investor and a more confident one too.
Really. If you sit down and decide for yourself what you think, deep down, makes excess returns possible in the markets - how it is actually possible to win in this game, and then acid test your convictions against all sorts of counter arguments. Then guess what? You are already miles ahead of 90% of the other investors out there.
From one question.
Sounds silly? Don't believe me? Try to invert it: how good an investor could you be if you had no idea or was constantly changing your mind on what it actually took to do well in the stock market? Outside of sheer luck does it make sense to you that such a person could do better than the overall market?
Then ask yourself how many investors you know who truly, deep down, feel that they *know* how it is possible to win in the market. Not many, right.
See what I mean?
Answering the foundational questions at a deep level of conviction builds character. Investing character. This enables you to stick to your guns and reap the benefits of your strategy. It's actually that simple: investing is fundamentally about strength of character. But this can be built. (For now: just take my word on that one.)
Okay, let's get to it:
Here are the 11 questions in the four major categories. As I get to it I'll write an article page on each of the questions but for now I'll just let them 'hang' here in all their glorious nakedness.
Remember: start from the top and work your way down. Ditch the small stuff and go straight for the big, hairy (and hard!) questions. They have by far the biggest payoff.
11 Questions To Build Your Investing Process
YOUR INVESTING PHILOSOPHY
1) What makes excess returns possible?
2) Where can I compete as an investor?
3) What do I really, truly want from investing?
YOUR INVESTING STRATEGY
4) Portfolio: What combination of securities best achieve my goals?
5) How do I select an individual investment?
6) When do I sell?
YOUR INVESTING TACTICS
7) When and where - physically - should I invest?
8) What technology and setup helps me make good decisions?
9) When and how do I monitor my investments?
YOUR INVESTING AUDIT
10) When will I review my investment process?
11) How will I collect thoughts and input for that review process?
There it is: my framework for building an investing process. Yes, it is a very rough and daunting list of top level questions. But working through it in whatever way works for you is guaranteed to make you a a better and more confident investor.
But now I'm just curious what your thinking is: what questions should you answer before you invest? Did my list miss something? Too complicated? Let me know in the comments below.
PS: I've made this post into a permanent page here on the site and plan to, maybe, write deeper articles on each one which I will link to from that article, so check that out sometime in the future.