How To Master Investing & Not Lose
By Dr. Steve Sjuggerud, President, Investment U
Thursday, April 15, 2004: Issue #329
I watched Vladimir Klitschko LOSE his heavyweight boxing match on HBO last week. Earlier in the week, I watched in person as tennis star Mary Pierce LOST to Serena Williams.
But I say they both LOST because they could have won.
In Klitschko’s case, he should have won easily. At 6′8″, he had an enormous height advantage over his opponent. And he was capitalizing on it, landing what seemed like 10 times as many punches per round. But Klitschko didn’t seem to have a plan, and it cost him. The first moments the fight went against him, he folded. It was over in an instant.
Klitschko should have won easily, but Mary Pierce shouldn’t have.
Mary had her work cut out for her. She was playing quite possibly the most athletic woman in tennis. Mary was holding her own in the first set Serena was serving at over 100 miles per hour. But so was Mary. Serena was hitting winner after winner. But so was Mary. In the first set, the only thing that separated them was that Mary was the one who made the mistakes when it counted the most.
Ultimately Klitschko and Pierce lost for the same reason that talented traders and investors still lose money… not because of their skills, but because of their heads.
In our upcoming book, Safe Strategies for Financial Freedom (due out in May), Dr. Van K. Tharp talks about eight of the key reasons why skilled investors likely lost money in the last few years:
1) You didn’t have a plan or rules to guide your behavior.
2) You didn’t know your “financial freedom number,” but instead were concentrating on how much you could accumulate.
3) You didn’t have a pre-planned exit point when you entered your position (or if you did, you didn’t follow it).
4) You didn’t practice wise position sizing (i.e. you risked too much on a trade).
5) You didn’t have the discipline to follow these rules.
6) You became very emotional about your trading.
7) You allowed outside sources to distract you from your plan, or you didn’t have enough conviction to follow your plan.
8)Most important, you didn’t acknowledge personal responsibility for your behavior.
These truths apply at all times of course, whether you’re a novice or an expert. One slip up, and you could end up like Klitschko. In particular, these mistakes separate the winners from the losers. Becoming a winner in trading and investing, just like in sports (and in life), is not just about understanding everything
Winners in sports, investing, and life know how to stick with their game plans when the going gets rough. And they also know when to cut their losses and change tack entirely. They have a plan.
Most importantly, winners know they’ll win. They have conviction. When you don’t have conviction in your investing idea, you will get out at the first sign of trouble. And therefore, you will never make extraordinarily large returns in your trading.
Correcting all of these issues is beyond the scope one e-letter. However, there is free information, newsletter back issues, and more to consider at Van Tharp’s web site (www.iitm.com).
Today’s Investment U Cribsheet
- Safe Strategies for Financial Freedom, which Dr. Van K. Tharp and I co-authored, can be bought here. By buying it there, Van also gives you two free special reports. Give either of those a try.
- Position Sizing: How to Limit Risk & Maximize Gains
- In Response To IU’s E-Mailbag…
- Crude Oil Prices: Are “Oily Characters” Behind the Move?
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