Five Steps to Becoming a Better Investor
By Dr. Steve Sjuggerud, Investment U Analyst
Thursday, November 27, 2003: Issue #293
If you can invest full-time, here’s the basic recipe for the best performance…
“Those investment guys at Citibank don’t know anything they just clock in and clock out, and never actually think for themselves.”
This complainer is an Englishman working in Brazil. He’s a hardworking entrepreneur, and he was an attendee of an International Institute of Trading Mastery seminar I spoke at last week. This Englishman was at the conference to learn about better investing to significantly improve as a trader/investor.
I think he’ll become a great investor, he’s already following the five basic steps I outline below about better investing. And as you’ll see, if you follow them as well, you’ll not only beat the pros at their own game, you’ll become a great investor just like our English friend.
Breaking Down the Big Guys
The first thing that tipped me off about the Englishman being on the right track was that he’d already made an important discovery: The fact that someone works for a big firm, does not mean they actually know anything about making money…
When you work for a big firm, like a Morgan Stanley, the truth is you’re not really expected to think for yourself about the big picture. You’re simply a cog in the wheel. And so is everybody else. It works, all the cogs rely on each other.
For example, a Morgan Stanley broker’s job is not to think about the markets…
That’s what guys like Barton Biggs and Byron Wien at Morgan Stanley are paid to do.
- You’re not expected to pick stocks. That’s the research department’s job.
- You’re not expected to fill orders. That’s the trading department’s job.
- You’re not expected to fill out account forms and send ‘em to the home office. That’s the operations department’s job.
- And you don’t have to keep up with the regulators. That’s the compliance department’s job
Heck, what do you even do?
As a broker, your sole job is to be on the phone talking to clients. That’s it. No thinking for yourself please, we have a department for that.
I’m confident that you can beat that guy (and all the rest of those guys) at investing. You’ve simply got to put it all together, something they’re not allowed to do. And I’ve come up with five things that I believe it takes…
The Five Keys To Better Investing
Let me preface this by saying that most people will not have the time nor the desire to go through with this. And let me also say that the five things below are not all earth-shattering, as there’s no substitute for hard work. But if you’ve got the time, and you stick to these five things, you can beat practically everyone…
- Commitment. I know that Englishman is more committed He is not clocking in and clocking out. This is the primary thing consuming his brain. He’ll be able to beat the guys who aren’t expected to think in no time. Among two roughly equally skilled competitors, the one with deeper commitment usually wins.
- Homework. You need to know more than the other guy – your competition. This means educating yourself (reading) and crunching numbers yourself. I recommend some resources to get educated at the bottom of this email.
- Experience. Unless you’re Tiger Woods, even with all the skills and commitment, you’re not going to win big your first year. But at first, you at least need to be in the game. All the reading about golf in the world isn’t going to make you a good golfer if you’re not on the course. Keep paying your dues (by investing), take personal responsibility for your losses and try to learn from them, and the big profits will come.
- Thinking for yourself. Along my investment education I’ve been amazed to find that there are only a couple of folks out there who think for themselves. These names include Jim Rogers, Bill Gross and Warren Buffett. But it is an amazingly short list. Remember, the employees of a brokerage firm are not paid to think for themselves. So you’ll be able to beat the brokerage firms in no time. If you’re simply copying their advice, you’ll never beat ‘em.
- Avoiding major mistakes. The “catastrophic loss” is what kills you. You can’t afford to lose it all. Cut your losses early. Use trailing stops. Do whatever it takes to keep your downside limited and your upside unlimited. Pretty soon, one day, that unlimited upside will show up in your account
There are ways to do okay in 30 minutes a year. There are ways to do well in 30 minutes a week. But I’m not talking about those ways. I’m talking about becoming a superstar – the best full-time investor/trader possible.
Bonus: Two More Ways To Become A Better Investor
In addition to the FIVE steps above, two great things you can do to become a better investor, a smarter, wealthier investor are:
- Learn how the great, individualist investors got great and how they think…
Jim Rogers: Read the book Adventure Capitalist by Jim Rogers (you can learn more about Jim at www.JimRogers.com).
Bill Gross: Read his monthly commentaries at the www.PIMCO.com website and learn what he’s talking about
Warren Buffett: Read and try to understand what Warren Buffett is talking about at: www.berkshirehathaway.com
- Learn to do great homework.
Two books of great homework are: The Research Driven Investor by Tim Hayes and Winning on Wall Street by Martin Zweig.
A few great books with great thinkers include all of the Market Wizards books by Jack Schwager (particularly the first one), and the work done by the folks at the International Institute of Trading Mastery (www.iitm.com)
This e-Letter is often filled with tips and tricks-shortcuts to making you a better investor-a successful investor. But to truly be great, you can’t get around the work. Today is not about tricks or shortcuts.
Along the way you may just find, like I have, that the learning and getting better at something is a lot of fun. You may even come to see investing as I do, more as an all-consuming game with a scoreboard, rather than work. And there is a scoreboard: It’s your monthly account statement.
If you want to be great, and you’ve got the time and the inclination, I’ve given you the five keys to becoming a better investor and beating everyone, and a pile of books to get you started in the right direction so get to it!
There is no downside to heading down this path even if you can’t give it the full commitment, you’ll be a much better investor than you ever were. And that’s worth it.
Good investing,
Steve
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