My Roadmap to Becoming a Better Investor

by Troy on June 11, 2013

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Roadmap to Becoming a Better Investor
As an investor, I’m constantly looking for ways to improve myself and improve my investment returns. Last year was somewhat of a disappointment, so this year I’m gonna kick-ass Rambo style to make up for last year’s shortcomings. In the following year, here are 4 things I’m going to do to improve my investment style (and how you can mirror my improvements).

Testing One, Two, Three

I’d like to try out some different investing (and trading) strategies this year. Right now, I’m strictly a medium term investor, as most of my investments have a time frame of one month to a year.

This means that this year, I’m going to day trade a bit, try going contrarian, and trying out more complex trades like futures and options. I’ll try out everything under the sun, because what works for others might not work for me. I’ll never know what works and what doesn’t until I’ve tried it.

Because this is just a test, I’m not going to commit a lot of money to it. Like any newbie with no experience, committing a lot of money to these different strategies is a fast way to the poorhouse – I’m just going to use a couple of thousand dollars here and there to test out my ideas. If day trading works, maybe I’ll be more of a day trader. But if it doesn’t work, then all I’m out of is a couple of thousand dollars. No biggie. Lesson learned.

The one thing I’m not going to try is long term investing. Sorry guys, I don’t have 20 years to get rich slow. I might be hit by a truck in 2 days – who knows. I want to be a millionaire before I’m 30.

So if you have a few thousand dollars to play with, then test around. Try out different things – you never know which investment strategy will be right for you. The only way to find out is to try.

Try Quantifying the Fundamentals.

Right now, the biggest problem with every fundamental investor is that they can’t quantify the economy. Every fundamental investor pretty much says “I FEEL LIKE the economy is doing better”. In order to make accurate investment decisions, we have to turn everything into numbers so that things become black and white rather than 50 shades of gray (not talking about the book here).

Sure, there are economic numbers. But this data is stale and useless by the time it comes out. GDP reports, employment numbers – these all come out weeks and months AFTER the economic environment has already happened. Thus, this is of no predictive use. Who cares what the economy was 5 weeks ago – I want to know what it is now!

I do personally know one person who can quantify the current fundamentals (I’m vaguely aware of how he does it). I don’t know how he does it – I just know that he does (it has something to do with railroad data). That is insanely amazing, because if I can learn from him how he does it, then I can solve one of the biggest fundamentals that all fundamental investors face.

Begin Incorporating Others’ Opinions

I’ve never been a big fan of following others’ advice. Never have been, even as a child. Rather, I’ve always been one to formulate my own opinion and do my own homework (hooray for independent thinking!).

This ideology has carried over with me into my investment life. Since I first started investing, I’ve always adhered to one principle – don’t do something just because someone else is doing it. It has to register through my brain first.

Essentially, this idea means that I shouldn’t be paying attention to the market views of other successful investors because I always want to do things myself.

In a sense, when I first started investing this was the right thing to do. When you first start investing, buying and selling (listen to others) will simply screw you over. Let’s assume that you were lucky enough to follow one of the smartest guys out there. He advises you to buy ABC, and you do. 6 months later, you talk to him about ABC (which has been performing poorly recently), and he tells you that he sold it 3 months ago. Aww shucks.

The thing about following others is that you don’t know when they’ve changed their mind on a certain investment (unless you have ’em on speed dial 24.7). It’s dangerous, and I’ve made this mistake before.

Also, when you first start investing, listening to others does more harm than good. Since everyone’s a bit soft-brained when they start, listening to so many different voices at once will only confuse and cloud your judgement.

However, right now I’m in a different stage. ¬†Being way past the beginner stage, I can now confidently say that I’m more mature and seasoned of an investor. Hence, I think that I can now follow some other respect traders and fund managers without clouding my own judgement.

Here’s how I’m going to do it:

  1. The people I’ll watch closely need to have a good track record – no sense in following some loser who’s doing worse than myself. Learn from winners, not losers.
  2. I won’t invest in something just because someone else is doing it. Rather, I’ll use their market views as either a confirmation (if we agree), meaning I’ll increase my position size, or as a discouragement (if we disagree) meaning I’ll lessen my position size.

Lower My Annual Target

You’re probably reading this and thinking WHAT!?! You’re way of improving yourself as an investor is to lower your goals?

The answer is yes. In the past, I’ve found that when we lower our goals, we often do better than if we were to set higher goals. Kinda weird, but true. Here’s why.

When you lower your goals, you’re putting less pressure on yourself. Any seasoned investor will tell you that one invests best when one’s under less pressure. Less pressure means that you can be more patient, and patience is the key to success. As with what happened to myself in the past, the more I want to make money the less money I make. Talk about a paradox.

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