About the author
Colin Nicholson is an investor and investment education expert. Famous speaker, Finsia board member. President of the Australian Association of Technical Analysts.
It helps us understand cognitive biases in investing and provides a series of strategies to help us overcome them. Thereby, we develop the art of contrarian thinking to develop the skills to make informed and effective decisions in the investment process.
Part I – Expanding your mind
Chapter 1: "Shaping fate"
Great investors have a few key qualities that set them apart:
Education: Most of them graduate from high school, college or graduate school, but they maintain their education through their profession by all means.
Intelligence: They are intelligent people, but require years of deep thinking.
Experience: They draw on past experiences and sharpen their skills under market pressure.
In addition to these qualities, great investors also learn to think differently. “It is essential to have a clear and correct thinking pattern for decision making and the ability to keep emotions from eating away from that pattern.” (Warren Buffett)
Chapter 2: “Men and Women” (Overconfident)
The modern economy has many parts that work and interact with each other. When making an assessment of a situation, we are often subjective, overconfident and biased towards its true nature. Researchers believe that both men and women are overconfident. Men are generally much more overconfident in general.
In a survey of investors in the stock market, when feedback was quick and accurate, confidence was the same in both sexes. But when information is lacking or ambiguous, women are often less confident; meanwhile, men are still confident, they do financial analysis without relying on brokers, and still make more transactions. And in the end it was discovered that the more you trade, in this case, the lower your profits. So it can be concluded, women are better traders than men, because they lack excessive self-confidence.
Chapter 3: “I Am Absolutely Right” (Overconfidence, affirmative bias, and available memory)
Good decision-making depends on two factors: finding data and the right level of confidence.
Data is abundant on the internet, but it takes a long time to search, sometimes the data is very vague and comes from public opinion. Therefore, I have to improve my ability to evaluate and have a solid argument within the limits of my knowledge. The problem is not how much information we have, but what is important is that we know what important factors are driving the situation. In other words, information is necessary, but what we do with it is important.
We often have an overconfident attitude and tend to use a simple cause-and-effect relationship without paying attention to the many hidden variables that are difficult to determine. Therefore, do not assert anything without verifying it.
Overconfidence stems from delusions of superiority, unrealistic optimism about one's own abilities, illusions of control, limited imagination, assertion bias, and selective memory. Filter means only remembering successes, discarding past failures.
1. Try to be sober to never accept an untested model or idea. The question should be asked: how many times has this model or idea worked and failed in the past? This practice helps to reduce our level of overconfidence.
2. We need to carefully consider the positives and negatives before forming an opinion and implementing it.
3. Focus on what's important, don't waste time and energy on things that don't make a real difference to the decision.
4. Quality records should be kept that measure our investment performance over the years to draw lessons. It doesn't take long to listen to predictions, must be skeptical of all information by thinking opposite so as not to lose objectivity.
Chapter 4: "Mine, it's all mine" (Inductive computing)
In the first stage of investing in stocks, they are always looking for advice, people will tell them what to do, that is, they look for solutions to investment problems that lie outside of themselves. . But they can only be as successful as other investors if they learn to make their own decisions.
In the second stage, they realize the need for self-determination, so they look for the perfect system, they try different types of systems, read books, learn from discussions. But the search is completely futile because no perfect system exists, and the solution is still outside of itself.
Stage three, they realize the path to success lies within themselves; they realize their profits or losses are determined by their own actions.
Success in investing depends on how well we control our emotions and avoid "perceived distortions" in the decision-making process.
1. Regularly re-evaluate every investment against its present value.
2. Regroup the books every year, this helps you to always consider the profits earned as real money in your pocket.
3. Graph your total portfolio value every day or every week to track.
4. It's a good idea to pull some profits off the table from time to time, it helps to combat the kind of misconception that it's "the market's money" and not "my money".
5. Prepare a portfolio report every 6 months, which gives you a sense that any current value in your portfolio is yours.
Chapter 5: “Why We Never Learn” (Reinforcement and Punishment)
There are mainly two ways that investors use when buying stocks: the low-risk method and the high-risk method.
The high-risk strategy is to buy high and sell at a higher price, when the market is in a bubble. This method is also known as the “more fool method” to sell at a higher price.
The low-risk strategy is to buy stocks when they are cheap and sell when they are more expensive. This method is very difficult to make a profit with certainty.
There are times when we are determined not to buy other stocks when the price is cheap, and not to sell when the price is higher, because of fear and greed. When faced with risky decisions, we often use the past as a tool to solve the situation.
1. Reading biographies of great investors helps us to understand differences in their behavior, to offset our poor experiences.
2. Read stock market history, it helps us to have perspective on current events.
3. Always carry a diary with you, recording decisions and thoughts about the reasons for making those decisions. Record all information related to the company in which we invest.
4. See clearly the difference between price and value. When driven by emotions, the market can overvalue a stock beyond its true value. If the value is not higher than the actual value, do not buy. If the market price is lower than the actual value, consider buying.
Chapter 6: “Love is Blind” (Contradiction of perception)
Cognitive dissonance is the unpleasant feeling when external events contradict our inner actions or opinions.
The stock market is a type of market that always operates in an atmosphere of instability, this is the place where people are most clearly entangled in cognitive contradictions.
People resolve cognitive contradictions by avoiding situations or information that give rise to conflict. They look for situations or information that are not contradictory. When faced with a dangerous warning sign, they expressed doubts about the sign and its authenticity.
In 2008, despite signs that the stock market was at a dangerously high level, stock speculators still consoled themselves that the market was not too high, ignoring or ignoring any warnings or warnings. negative information. They try to think that the bad news is temporary or not too serious. The stock market boom led to the global financial crisis.
1. Take a piece of paper and draw two columns: the left column lists the positive points, the right column lists the negative points. It's important to try to build an overall assessment of those positives and negatives, which helps us see why someone would sell the stock to us.
2. Find someone who really understands the issue and ask them to refute our decision.
3. Put yourself in the opposite position of what you believe or want to do, so that you can make a fair and rational decision.
Chapter 7: “Shallow knowledge, unpredictable dangers” (Differences due to typical situations)
Perception deviation due to typical situations occurs when we use an object, something that has a similar appearance as a basis for decision making. We then focus so much on the similarities that we overlook or ignore the factors that actually play a role in determining the outcome of the situation.
Every time the stock market rallies, there are countless examples of typical situational traps. Situational deviation is one of the driving forces behind the development of the speculative bubble. Stock selection is one of the processes most affected by this type of bias.
Whenever you are faced with difficult choice situations, while you have little or no useful information, don't use feelings, calculate the probability or probability of choices. . Look for real statistics and use them as a basis for calculating probabilities. If we know how to make similar choices based on probability, our chances of making the correct choice will be very high.
Always ask yourself: what is the base rate of the situation? Get in the habit of quantifying everything. Let's say we see a lot of new businesses starting up, doing well, and intending to invest in some of them. Look for statistics on the number of businesses that succeed and fail in the first two or 10 years. That is the basic ratio. Are the success and failure rates the same in all types of markets? Answering these questions isn't easy, but it's what great investors do all the time.
Chapter 8: “Next Time For Sure” (Gambler's Illusion)
Toss a coin, five times in a row heads up, the next time we bet the coin will come up heads, that's the "gambler's illusion".
The "gambler's illusion" is quite common in the stock market. Every time the market makes a bullish wave, the forecasters compete to predict that the uptrend will soon end. Because the law of average recovery states that, after a long period of strong and sustained growth, future returns should return to roughly equal to average to satisfy the law of equilibrium. However, the above prediction has been applied incorrectly to the law of large numbers, that is, the law of average recovery takes a long time.
Any bull run can come to an end at any time, but the truth is that we invest in the company, not the market. The growth rate is fast or slow depending on the health of the economy, as well as the role of the company's business industry.
Smart investors never try to predict a reversal of direction. If the industry unfortunately fails, they will immediately sell the stock and turn to other growing businesses.
To defeat the “gambler's illusion,” we must see the market the way the great investors do. Ben Graham always looks back at least 10 years before evaluating a company.
Chapter 9: “Dangerous Wounds” (Random Reinforcement)
Random reinforcement occurs when someone receives a reward unexpectedly, by accident, or by accident. The person hopes his actions will bring more results, but when that result will appear, he has absolutely no idea.
Random reinforcement is at the root of gambling addiction and many other superstitions. It is also a natural part of investing.
Understanding this, rather than dismissing it, successful investors and traders learn to face it and deal with it.
It is essential to have an investment and trading plan built on the foundation of useful behaviors, test it so that you truly believe and follow all the rules and guidelines written in it. plan with the highest spirit of seriousness and discipline.
Log every investment. When I close an investment, I evaluate it against the original investment plan, and see if there are any problems that need to be addressed to make it better in the future.
Chapter 10: “How much does this cost” (Difference to the original price)
In many cultures, sellers “scream” a price much higher than the market price. From this initial value, the buyer and the seller must pass a bargain. This is an extremely difficult game.
The deviation from the initial value also occurs both in investing and in our daily lives. When we have to guess or estimate something we don't know well, we naturally have to look for some reference point.
In investing in stocks, there is a maxim that always holds true: price is what we pay, and value is what we get in return. The best approach is to establish a base that is not affected by the initial value, and then carefully balance the adjustments.
Consult others and ask what they think of our assessment. Don't rely on just one person's opinion, do your research, calculate and come up with an acceptable number before negotiating.
In the stock market, we calculate the true value of a stock, always apply a variety of principles to calculate the true value, and then come up with an estimate based on the values we have calculated. Compare the actual value and the market price, only buy when it is reasonable.
Chapter 11: “Restructuring” (Predicting according to the facts that happened)
When an investment is promoted well, we have the illusion that we are smart, we are good. When recounting those feats, we often "reconstruct" verbally to add more appeal to the story, we have a mentality of bragging and feeling proud. We have overestimated the possibility of success, while deliberately forgetting the memory of past failures.
Selective and reconstructed memories happen unconsciously in our heads, which is extremely dangerous to our ability to learn from past experiences. As a result, we possess in our heads a bunch of distorted, distorted knowledge, create blind confidence and take many risks beyond our ability to bear in the future.
- Keeping detailed records of investment activities is essential.
- Build a table that summarizes profits as well as losses.
- Make a journal before you buy a stock and record everything you knew at the time of the decision, as well as the reasoning behind the decision.
- When terminating an investment, it is advisable to conduct a written evaluation of it.
- Be honest with yourself as it is a powerful learning tool and defeat the perceptual bias of predictive truth.
Chapter 12: “Why We Make Mistakes” (Reverse Position Effect and Prospect Theory)
The “reverse position effect” is the tendency for investors to sell profitable investments, and hold on to losing investments. Through research, economists conclude: investors have refused to take risks when losing. This action goes against the golden rule that great investors have advised: “Let profits grow and cut losses quickly.”
The three concepts that explain the reverse position effect are:
“Feeling calculation”: looking at individual investments separately, this practice makes it impossible for us to make a reasonable assessment of the choices we face.
“Pride and regret”: take advantage of early profits for pride, bragging, and regrets.
“Self-control”: the confrontation between reason (plan) and emotion (execution).
Every decision we make comes with an invisible price known as the “opportunity cost” that is the cost of another opportunity we have overlooked. Understanding opportunity costs is essential, helping us decide to cut losses and promptly switch to better investments. From there, we know what we can do to avoid the reverse position effect.
- Make an investment plan, record the expectations of the stock you want to buy. Sell as soon as things are not favorable, find new, more promising targets.
- Minimize the impact of emotional computing.
- Regularly review each stock in the portfolio (after the company's business reporting period). Selling losing stocks is a way to switch to better stocks, instead of sitting still and suffering losses.
- For each stock, we will answer the questions: Is the price performance satisfactory? If not, what is the opportunity cost of continuing to hold that stock? (how many alternative stocks we can invest in, compare the stocks we hold.)
Chapter 13: “The bowl of water that is spilled can never be recovered” (Sink cost fallacy)
One of the reasons most people find it difficult to make the decision to stop loss is the “sunk cost fallacy” – the kind of cost that has already been lost.
In investing, the initial price paid for a stock is the sunk cost. If a stock slips in price over time, there's no guarantee the sunk costs can be recouped. The sunk cost fallacy appears, investors do not want to make a rational decision to receive a loss from the stock, because the current price is lower than the time of making the investment. But the decisions we make today or tomorrow will never change what happened in the past. Spilled water bowl cannot be taken back.
A discerning investor will do whatever it takes to develop the habit of forgetting about sunk costs and focusing all of their attention on alternative stocks, either for continuation, for diversion, or for liquidation.
To deal with the “sunk cost fallacy”, the best strategy is the same strategy for the “reverse position effect” in the previous chapter.
When implementing this strategy, our whole mind is focused on only one goal, which is how to make the best use of the residual value in the underperforming stocks, instead of worrying about it. sunk costs. In fact, we could make more money if we redirect our investments to higher quality stocks.
Chapter 14: “I Remember Well” (Diagnosis of Return Availability)
Pre-existing memory distortion means that when we are forced to make a decision or opinion on an issue, we tend to rely on our memories.
Preexisting memory distortions adversely affect decision-making skills. For example, in a series of events the false analogy in memory can lead us to misunderstand a particular reason because we do not recognize the basic proportions between them.
To correct the distortion caused by the existing memory, we conduct a memory study. Keep searching for the most complete look at available data, base scaling on data drawn from a large number of similar events and their probabilities. .
Be especially wary of someone's recommendations or tips about a stock, which may be distorted by distortions due to their existing memory. Have to look up data on that stock over a long period of time (a decade, for example).
Look for a few alternative stocks, weigh them all against a key ratio or guiding criteria.
Chapter 15: “Nothing is absolute…” (Rule of small numbers, law of average recovery)
“Rule of small numbers”: The law of average recovery does not apply to small cases. This rule is only true for very large cases or a large number of typical situations.
The notion that whenever the stock market falls simultaneously, sooner or later it will recover and rise stronger than before. So, we keep holding the stock and don't panic. In general, this view is quite correct.
The stock index is mainly composed of blue-chip stocks. Blue-chip stocks may have a slightly better chance of survival than other stocks, but that doesn't mean every blue-chip stock that has fallen in price will one day regain its luster. old.
The point here is, the stocks that make up the stock index are constantly changing over time. With every passing decade, hundreds more stocks are listed and just as many are lost on the exchange, including stocks that were formerly blue-chips. Times are always changing, every product goes through a life cycle: growth, peak and decline. New technologies are born one after another. The mineral deposits will eventually run out. It is foolish and naive to assume that a company that was once at its peak, and whose stock has just fallen in price, is bound to return one day.
The rule of small numbers is incorrect, because an event that happened once in the past is not a reason to conclude it will happen again in the present. To repeat, it must meet all the conditions as well as have the same environment in the past.
Please take the time to read the history. But history doesn't always repeat itself the same way. Reading history must focus on causes and authentic evidence, so that it is easy to assess the degree of similarity in the current situation.
If a stock goes down for a long time there will always be a cause behind it. Candlestick:
Investigate the causes of stock declines.
+ Find evidence that the issuer has solved the problem.
Build an understanding of the company's future.
Consider the cyclical nature of that company's industry.
Compare that stock with that of a competing company.
Never ignore the opportunity cost.
Chapter 16: “What's Its Worth…” (Overreaction)
Overreacting to information: if the news is bad, the stock price will plummet. When the news is good, the stock price will skyrocket and surpass analysts' expectations. However, that overreaction will soon be quashed by smart investors as they use arbitrage on various exchanges.
Overreaction is a phenomenon that investors need to be aware of. Investors should find ways to control their emotions when faced with both good and bad news about companies.
If a stock is sold off because of bad news, we ask: does the reaction arise in the short-term picture instead of the long-term? That stock is undervalued, we can buy. However, let's set a limit, if it is exceeded, we must sell immediately.
Diversify an undervalued stock portfolio, do not hold too many stocks in a certain industry, avoid the rule of small numbers, we should apply many different principles to evaluate these stocks.
If stocks are undervalued, after a period of rallying again, if they surpass their true value and are deemed overvalued by the market reaction, one must think that they are in danger of slipping down. We must redirect our investments to other undervalued stocks.
Chapter 17: “Hesitation is… the last” (Procrastination)
“Delayed deviation” due to not daring to change, comes from the instinct to protect our ego.
People who suffer from procrastination are people with low self-esteem, often have difficulty separating ego from action, failure, cult of perfectionism.
Delayed deviation occurs when we choose to keep the status quo for investment decisions, because the outcome is uncertain while the options are too complex.
When uncertainty is combined with the need to choose from among many different stocks or assets to buy, it causes us to panic, so the best bet is to choose nothing at all. tying themselves to their original status quo, they kept their investment and prayed the hardship would pass if they ignored it. Such cases often end up with bad results.
Make an investment plan, including a profit target, if not met, find out why, and it will help you know what to do.
When it comes to decision making on an underperforming stock, it's best to sell it, i.e. change the status quo.
Do not tell anyone about the results of the investment, which causes our knowledge to be distorted leading to cognitive distortion.
Focus on the overall investment plan instead of the individual.
Review each stock after each reporting season, proudly comparing it to six interchangeable stocks.
Log in. After a year, if its value has not changed compared to the amount spent to buy, immediately apply the 6 types of shares mentioned above.
If the market goes up for two to three years, sell any stocks that are worth less than when they were bought. This strategy helps turn the original status quo into cash, because there are always better stocks out there.
Chapter 18: “What do you want to do” (Regret)
The main investment battle is not in the market, it's in our minds, the way we think.
When we have to suffer a loss, a big loss after deciding to buy a stock, we regret, that is, feel the discomfort and pain.
After making a mistake, we try to alleviate regret by rationalizing our mistake, we ease the pain by blaming others such as brokers, consultants or the market. school, to disclaim responsibility. This habit of blaming can interfere with the learning process.
Great and successful investors learn from an early age to take responsibility for their decisions. From that foundation, they can very quickly build their own skills.
So, it's important to learn to recognize your decisions and take responsibility for them so that you can open the door to improving your decision-making skills better.
Draw a block diagram and record all decisions on the chart.
The investment plan includes a section describing the types of decisions we need to make.
Keep a journal for each investment that shows any new information about the stocks we invest in and what our decisions were and why.
When buying stocks, we have an expectation with a specified time, if it doesn't go as expected, we need to cut losses immediately, to pursue the investment plan set out.
Chapter 19: “Ask Why Not” (Confirmation Deviation Again)
When we “fall in love” with our investments, we tend to look for evidence that backs up our beliefs; difficult to accept skeptical evidence and ignore its contradictions and negative points. The more certain you are with your own opinion, the greater the risk of having an assertion bias.
To avoid such deviations, we must ask: the brokers, the owners or sponsors of the company in the IPO, why are they selling to us? Ask yourself what could go wrong. Never ask for advice from the company's leaders. Do not consult with the brother or sister who sponsored the company. Ask his competitor, that is, look for opposing opinions.
Make a list of the stock's strengths and weaknesses. Look for critics who challenge all of our stock buying arguments.
Never consider a single stock, list 4 to 6 investable stocks, evaluate them on objective methods to find the best stock.
Chapter 20: “I Want It Now” (Impulsiveness, the desire for instant gratification)
The qualities of a great investor are patience and discipline. In contrast, many others have impulsivity accompanied by a desire for instant gratification.
In the reality of investing, returns never come from a quick and steady source. Many investors tend to grab small profits quickly, instead of waiting for the profits to multiply. Unfortunately, when seeing a few stocks in their portfolio start to appreciate, most investors will proceed to trim the stocks that are not rising. We know, each stock has a different rise and fall, we don't expect them all to rise at the same time. There are times when the stocks that rose before entering the decline phase are when the stocks that are slower to rise in price come into play. It was their desire for instant gratification that sold the stock at the wrong time.
According to Pareto's principle - or 20/80 rule - about 20% of the stocks in the portfolio will generate 80% of the returns. This principle also applies to time. Almost 80% of profits are generated about 20% of the time we hold the investment. Therefore, persistence and discipline are necessary.
Make an investment plan, write down your long-term goals, and then break them down into short-term financial goals. This helps us to limit the need for immediate gratification by promoting stronger long-term gratification.
Stop loss is the main goal of the investment plan. But must set price limit. If the drop falls below this limit, cut immediately. Don't get too hung up on your stops without giving your investments time and space to work.
Pursuing an investment plan, instead of stock price movements every day, can make us tempted to sell stocks to satisfy our desire for immediate profits.
Chapter 21: “Tell Me Why” (Random)
In life as in financial markets, many things happen by chance. The same event, each person has a completely different interpretation, sometimes it seems very logical. But that may be just one of many causes, not even the most important one.
If we act on man-made patterns to explain random behavior, especially in the stock market, we will damage our accounts and prevent ourselves from learning new techniques. ability to deal with random or difficult-to-explain events.
Be very careful with explanations of an event happening in the market, sometimes it can just be a coincidence for which the cause cannot be determined – Be skeptical and ask questions with everything.
We always seek to predict the future, knowing full well that it is impossible to predict the future with certainty and accuracy.
It is better to conduct an assessment of the situations from which to deploy the appropriate strategy for the situations, if the circumstances change, we also change the strategy accordingly.
Chapter 22: “It Can't Happen” (The Ostrich Effect)
When a disaster strikes, we are faced with a status quo that is unprecedented in our experience, ambiguous, complex, and difficult to interpret. Our minds lose the ability to come up with effective ways to deal with it, so we stiffen with fear. We bury our heads in the crowd, waiting for someone to come to our rescue, that's the "ostrich effect."
During market crashes or corporate crashes, the stories of investors drowning in their stocks are unspeakable.
Read the history so we can know what happened in the stock market, let's simply get acquainted with the types of long-term stock charts.
Force yourself to imagine an extremely bad scenario, then estimate its consequences, devise a strategy to protect capital.
In case we encounter a scenario we have never seen in history, we can build a set of stop loss and diversification strategies.
Preparedness is the key. We can increase our chances of survival if we stay vigilant and have a financial survival plan in place.
Part II – Amid the avalanche
Chapter 23: "The Law of the Crowd"
The so-called "crowd" is a group of people with new characteristics that are completely different from their own. Their feelings and ideas all move in the same direction, where the conscious personality does not exist. Also from here, the herd spirit was formed.
Affirmations of a belief are repeated over and over until it becomes an image in the minds of the masses and spreads like a contagious disease.
The image is irresistible: They can become instantly rich through speculation that is accepted by the masses as fact, even though there is no definitive proof. They encourage rationalization of rising prices. The crowd becomes overconfident, blind to a single value standard, ignoring all experience. Something happens, the attractive image is questioned, the confidence turns into anxiety, fear, panic, and the price goes downhill.
It is very difficult not to get caught in such hysteria. So, we need to read a lot of history books to form our ability to recognize the formation of hysteria, understand the crowd, and find ways to retain our independence.
Chapter 24: “Notes on Gustave Le Bon’s Crowdwork”
Crowds bring so much power to an individual that it feels like an invincible source of power – something that allows them to create tendencies they wouldn't otherwise have been able to do alone.
Affirmation, without any cause or proof, is one of the surest means of getting an idea into the mind of a crowd. The more certain the assertion, the less reason or proof, the more awe-inspiring the crowd is.
Due to the loss of all sense of responsibility for one's actions, the intensity of the crowd's emotions is also multiplied accordingly.
Being lost in the boundary of the unconscious, crowds become extremely light-hearted people, ready to fall according to every opinion they hear, and have extremely strong emotions - which are inherent only in the world. human beings are not capable of thinking with reason - thus immune to all forms of criticism and criticism.
Chapter 25: “Contradicting the Beliefs of the Crowd”
Experience has shown that when everyone has the same opinion, it is more likely that all will make mistakes. Because radical ideas are all grounded in error.
Extreme consensus occurs only during the turning points of the stock market. If everyone does the same thing, then logically everyone should get the same result. So, if we intend to make a better return than everyone else, we must invest in a way that is completely different from the crowd. To do that, we must have the art of contrarian thinking.
Practicing contrarian thinking is not an easy task. It is a completely new experience, which makes us nervous, because in order to apply it, we have to break all the old habits – the things that make us lose the ability to think and doubt the things that we don't know. we and the people around us still talk and still believe. Look for other aspects of it, seek and verify the evidence.
Part III – Seize the opportunity
Chapter 26: "Nine keys to success"
1. Foresight: The ability to see through and overcome the noise of daily news, to recognize what is the long-term trend – which plays a decisive role in the overall trend of the market.
2. Flexibility: Economic systems rarely stay in equilibrium for long. We have to be really flexible enough to adapt to the constantly changing situation of the market.
3. Make a plan: Make a clear investment plan, keep your self-discipline, because this is the period when we are not invaded by emotions.
4. Learning: Constantly testing and learning from new markets, new securities, new investment methods.
5. Seek advice: Reach out to talented people in their field, willing to pay for their advice, analyze that advice to get useful parts for yourself.
6. Humility: Accept the fact that some investments can be unsuccessful, learning from these experiences.
7. Confidence: Confidence comes from profound knowledge and extensive experience.
8. Intelligence: Investing is not easy, you must have a certain level of intelligence to understand it.
9. Persistence: Effort does not always bring success, but success rarely comes to those who do not make efforts.
Chapter 27: “Wrong Habits”
1. Arrogance: When overconfident, looking at things too easily, that is arrogance.
2. Exaggeration: Maximizing drama through one's monstrous assertions is exaggeration, very damaging.
3. Non-conformity: To overcome, we learn the art of keeping things in our sight and thinking carefully before acting.
4. Excessive caution: Caution is indeed important, but knowing how to take calculated risks is essential.
5. Doubt: Paranoid doubt will never dare to act.
6. Run away: When the pressure is too great, going out, retreating, running away is very dangerous. Need to make an investment plan as a manual, share problems encountered with people we trust.
7. Maliciousness: Malicious investors are willing to break the rules to benefit themselves. We must use principle and testing and pursue it to the end.
8. Eccentricity: Means lack of vision, watching everything is interesting.
9. No stance: It is better to test it yourself than to rely on the judgment of others.
10. Perfectionism: Learn to accept uncertainty.
11. Try to please everyone.
Chapter 28: “Handling Losses”
We need an investment plan. Arrange the number of shares we are holding in accordance with the plan. Never put all your money into one investment, we need to share the risk with other investments. Compare the prospects of the stocks we are investing in with other investments.
In the process of following an investment plan, by doing fundamental analysis and technical analysis, usually, an investment goes down in price during an uptrend, we see that everything is fine. Please be patient. Having a strong rally, stocks will go through several corrections before continuing to rise. When things go bad, falling below the set limit, we need to sell those losing stocks immediately.
Chapter 29: “Plan for success”
Write a complete investment plan. Test your investment plan through price movements from many years ago. Find someone you trust to support, explain the plan to them, report progress on pursuing the plan regularly with them.
Investment diary: Your decisions, reasons, assessment with the situation. Check your diary weekly to see if you're on schedule. Practice discipline, but don't be too hard on yourself.
Every time you lose, ask yourself what you did wrong, write it down in your diary, learn the lesson. Don't tell about your plans to people you don't trust, partner with optimists.
Build a diversified portfolio, no one investment should be too large. Always set a limit that determines the loss. If it falls below the specified limit, the investment must be sold.
Chapter 30: “Seven Investment Mistakes”
1. The future is something that is almost impossible to predict on a regular and precise basis. Do not believe that there is someone who is talented, has good predictability.
2. Investing means managing uncertainty, don't try to hold back to wait for the perfect moment.
3. Don't be afraid to make mistakes, build a portfolio of stocks, and maintain a safe margin for investment.
4. At the turning point of the market, we need to act in a way that is almost against the crowd. To do this, we need to cultivate exceptionally strong and disciplined characters.
5. The truth, investing is a very difficult job, it requires education, experience, diligence and patience.
6. Remember, the great investors are always the slow ones to get rich. They themselves have to contend with the get-rich-quick temptation.
7. Don't have unrealistic expectations.
Chapter 31: "The Wall"
At one point, the stock market started to rise, in the eyes of everyone, that recovery seemed very fragile because the news in the market was vague and confusing. It is said that the rising wave of prices at this moment is like trying to climb the "wall" of fear. There are many daring investors who do not dare to act.
In fact, no one can tell us what's going on. Forget about predicting the future. Develop an overall investment plan that evaluates and sets out a strategy to control the immediate situation. We can only identify a market bottoming after it has happened. It would be great if about half of our investments worked. The trick is to keep the good investments and get rid of the underperforming ones.
A gradual investment strategy is also an option, i.e. spreading investments evenly over time and into different industries, called diversification. A smarter idea is to buy several stocks at once and see how they perform. The stock doesn't do well, we throw it away. If it works well, we buy more.
Chapter 32: "Raise the white flag"
“Raising the white flag” of capitulation is an idea that describes a phenomenon that occurs when a large number of investors “escape” from the stock market at the same time, ending the bear market with a a strong sell-off of stocks.
The state of "raising the white flag" can happen slowly for a long time, which is clearly shown that investors gradually lose confidence in the recovery of the stock market.
People will realize why the market crashed so quickly, simply because stock prices have been pushed to unrealistic and unsustainable levels.
The surrender of investors comes in one form or another. But you have to be really wary of a simple explanation for such a complex phenomenon.
Chapter 33: "The arduous journey"
When the market is up, the trick is to get in early and stay in it. When the market is down, do the opposite, run away and stay away from it.
Extremely dangerous and difficult to deal with especially when the market is in the third state: fluctuating unpredictably horizontally. One minute it increased, only the next minute it decreased inexplicably.
In this harsh and difficult situation, investors must:
– Develop a specific plan for this type of market.
– Decide the level of participation in the market, but it is better to invest only partially in this market.
– Draw a stock curve and regularly evaluate your investment performance.
– Keep a log to draw lessons and to check the implementation of your plan.
During difficult market times, expectations must be realistic: no losses should exceed profits. Sometimes you have to forget about profits and focus on cutting losses.
Chapter 34: "Hurry and come early"
Economists observe and find that market prices are often not fixed on current events, but on conditions that investors expect in the future. In general, investors seem to be trying to see into the future.
What can we do to be able to imagine a different picture from the present? The first step is to develop a historical perspective, which is essential for envisioning future possibilities. We can see, in the stock market, that the cycles are similar to each other over and over again. But since people don't draw lessons from the past, they have almost no concept of what happened before.
Learn and never stop pondering, hypothesizing and testing the present with skills. Since we buy stocks we are not buying the previous year's profit but the expected return of the following years.
Chapter 35: "Blind by fear"
When our whole mind is occupied by fear, we react blindly to what is happening in the market. We are perturbed and heavily influenced by mob behavior.
The stock market as a leading indicator to measure the real economy. It is also agreed that the stock market always prospers before the real economy from 6 months to a year.
Therefore, investors, in addition to the complete plan, also need two things: patience and discipline - patience to promote the effectiveness of the plan in accordance with the timeframe; discipline to stick with the plan while everything is still within the plan.
Just imagining a bear market crash and rushing to raise the flag of surrender is just as bad as plunging like moths into the market when prices are up.
Chapter 36: "Conquer Fear"
Losing is part of the nature of investing, because investing is about accepting uncertainty and knowing how to manage it. The thing that holds us back from success is fear:
– Fear of not making investment decisions – missing opportunities.
– When the investment doesn't work, afraid of selling it, it will be a loss, keep holding and praying, things continue to go bad, we bear an even bigger loss than before.
– We are afraid of not taking profits, afraid that we will lose more profits when the stock rises. When it depreciates, we fear not admitting our mistake.
It must be understood that a strategy without risk will never stand a chance of making a profit. Bet on horse racing, if everyone knows which horse will win, where will the winners and losers come from?
So every investment contains uncertainty. Some of them will lose money. The best investors have learned to accept that uncertainty. They are capable of conquering fear in their minds. They are also unafraid to admit mistakes. On the contrary, always show a high degree of discipline as well as stay focused on what you are doing. They have a plan and take it very seriously.