Are you an internal locus of control person or an external? External locus of control people believe that everything that happens to them is beyond their control. Internal locus of control people believe that they control what happens to them for the most part. Let me tell you, if you are going to blame anybody for your investment losses, it should be yourself. If you invest, you are taking a risk of losing actual money. And the losses fall upon your shoulders.
Being your own master is a great opportunity and a great responsibility. I am really not trying to scare you, I just want you to be aware that it will be super difficult for me to create investing success for everyone. I may talk about companies or stocks but I give no recommendations for stocks to invest in. This is because you may buy early, buy late, sell early, sell late, or completely misunderstand what I say. You are in control of you. I am not.
How about we go over some things that can help you be successful at investing? First, and this may sound hokey, but the universe bends to your will. Visualize your success at finding good companies and making great investments. Visualize what your retirement will look like, what house you will own, what car you will drive. Visualize the good things you will have in life and meditate on these every day.
Next, let’s throw out all of the bad advice you’ve been given before. For instance, we will not be concerned with diversification, we are concerned with finding great companies. If we are concerned too much with diversification, we will pick bad companies to fill in the gaps. That will bring down our investing results.
I have heard it said that diversification reduces risk. Risk, however, is about whether you will gain or lose actual money. Diversification does not reduce risk, it both reduces your market gains and reduces your market losses. In other words, it reduces volatility. Volatility and risk are two very different things.
Actual money losses and market losses are also two very different things. A market’s loss is the market’s price of a stock going down from yesterday to today. It is not a real money loss unless you sell the stock. So if the market as a whole has a bad day and you sell, you have lost money. But if you hold on to the stock, because you know it is a good company and the market is wacky, the market price is likely to go up (because you bought a good company).
By the way, if you buy every stock in the S&P index two things will happen: You will not beat the S&P and you will not keep up with all of those companies. Instead we buy a small number of different companies, hence the term focus investing. Focus investing is the idea that you pick 10 or 15 different companies and buy shares in those. 10 is better. Because 10 companies are fairly easy to keep up with.
I have given you a little taste test of where we are going so I think I will stop there. Feel free to comment on this post if you agree or disagree with anything. I look forward to hearing from you.