Episode 12

Repress, suppress, invest! Check your emotions at the door

Welcome – Today we’re talking about controlling your behaviours and emotions…when it comes to investing

  1. Investing is an action, controlled by behaviours – emotions change your behaviours.
  2. Getting a good investment midframe allows you to invest well for the long term.

How to start investing and not muck up – This means controlling your fear more than trying to control investments – Can’t control what investments do short term

  1. Fear is an emotion – Which stops you from investing
  2. Starting is the hardest part – Getting the right fame of mind and overcoming fear
  3. But staying motivated and on track is just as hard
    • Life gets in the way – and new things happen in your personal life as well as market ups and downs

How to start? “Needs-based” plans – ignoring your emotions

  1. Hard to know – “you don’t know what you don’t know”
    1. What are you trying to achieve? – If you don’t know your reasons to invest, you can’t answer this
      • Long term growth?
      • Passive income?
    2. How will you achieve this? Strategies and investment options
      • Save a deposit – Buying a property
      • Monthly investing into Managed funds, LICs, rather than savings
  1. The most important thing is to just start – otherwise fear will take over and then so will indecision
    1. Information overload will be hard to overcome
      • Diversified products help to remove this – ETFs = let someone else make the investment decisions for you
    2. Taking the plunge – Start small if you are uncomfortable
      • You don’t need to put everything in, but a small amount
      • Example: Some people like to jump into a cold pool, others start with feet and slowly move in to acclimatise. Like a pool of investments, some people do dive heard first into pools, but what happens when they can’t see the bottom, or can’t swim?
        • If they break their neck or drown, would people say that pools are dangerous, or the behaviours were dangerous?
        • Say it is your pool, or a pool you go in every day? You know what you are in for – So you know if you should dive, or slowly get in.
      • Prior experiences do affect your future behaviours
        • Buy a property that goes down – Will you be more or less likely to buy another?
        • Buy shares right before a crash – will you be more or less likely to think share are too risky?
        • LESS likely in most cases – But these are some of the best long-term investments thanks to GROWTH
      • Don’t let one bad experience stop you
        • Or something you hear about – fear will come in from hearing about other people losing money

Failing at investments

  1. FEAR = failure
  2. Rational fears vs Irrational Fears – Some fear is good, but only of very risky investments, or of diving in head first!
  3. Stops people from starting to invest – Fear of the unknown – Shares are ownership
  4. Investments will fall apart if you respond by fear!
    • Doing the wrong thing – “fear selling”
  5. FEAR leads to following others instead of doing what is right for you.
    • Do they know something you don’t? SO, you follow them just in case, even if it’s irrational!
    • Buying – Leads to buying at peaks of bubbles
      • All because people buy property doesn’t mean you should.
      • All because people buy shares, doesn’t mean you should.
    • Selling – Leads to selling in the crashes
  6. How do you avoid this?

10 Do’s and 500 Don’ts of knife safety – Don’t do what Donny Don’t does!

  1. Investments can be pointy and have sharp declines – Killing your investment future
  2. I have some rules when I invest: There aren’t 10 – there are 5

Rule 1) Invest for the long term with a purpose!

  • This means holding through the cycles
  • Also investing in a diversified portfolio to survive – long term!
  • Not putting more into one investment than I can afford to lose

Rule 2) Don’t invest out of hope, or more than you can afford to lose – That is gambling

  • Invest with a greater certainty
  • Avoids you chasing the risky (and unlikely gains)
  • EXAMPLE – the only losses I have in shares is from hoping they will be big returns in the short term… they weren’t

Rule 3) Don’t do what the crowd is doing, just because they are doing it,

  • That is called “Contrarian investing”.
  • Buy when others are selling
    • Personally, I love doing this. Like the “divorce yard-sale” of investments
  • Sell when others are buying
    • Personally, I don’t do this, as what would I buy if I sold? I just wait for the crash and get things on discount.
    • I just don’t buy at these points, but I don’t sell.
  • You can’t time the market, but you can know when things are cheap or expensive.
    • Buy when it is cheap, and don’t buy when it is expensive

Rule 4) Don’t listen to the media – Their job is to sell fear and there is always a new crash coming

  • Try to sell when to buy: Look at the fads of investments – short term holds – but longer term someone is left holding the bag.
  • You don’t want to have to change your investment wardrobe every 6 months.
    • What do you replace it with? When you sell an investment, it goes to cash
    • Then what do you buy?
      • You are back at square one – Figuring out what to invest in now!

Rule 5) – If in doubt, remember rules 1 to 4!

 

In summary

  • Just start, but don’t dive in head first unless you know how deep the pool is.
  • Come up with your own rules over time as well. And avoid the fear!
  • Getting started in investments and keeping going is all about your behaviours.

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