I started a mindfulness routine a couple years ago, during a particularly stressful period in my life. A daily meditation practice was a life changer for me, bringing a new sense of awareness and calmness to how I approach everything from work to food to my family.
As with pretty much anything in life, I would often relate what I was learning through meditation back to my professional efforts. How could the lessons of mindfulness be applied to the investment process?
This question has helped define much of my professional life, from the design of my research firm to the naming of my column over at stockcharts.com, The Mindful Investor.
However, I am not perfect. There are days when I don’t make time to meditate. There are times where I allow myself to get overwhelmed with everything around me. And there are times when despite my expertise in behavioral finance, I make the most boneheaded behavioral blunders known to man.
I’ve found that having a routine is key. Even just a list of items that you commit to following. While it won’t make you perfect, it will help minimize the chance of you making those boneheaded mistakes you know you can make.
With that in mind, here are five practices that will help you bring a more mindful awareness to your investment process.
Five Practices of Mindful Investors
1) Focus on the evidence.
Investors often fall victim to what I call “wishful thinking” investing, which is basically deciding on an optimal outcome and then searching for information to support that point of view. This is confirmation bias at its worst, where your preconceived outlook affects your consideration of the evidence.
For me, charts have been the best way to focus on the evidence. Financial statements can be restated, but as my mentor Ralph Acampora says, “You can never restate price.”
Start with the evidence. Begin with an information-gathering period. Then once you’ve gathered the evidence, develop your thesis based on what you see. Now compare that back to your preexisting thesis. Does the thesis need to change based on the evidence?
2) Keep a weekly journal.
I write a daily journal every morning. I use the “three pages” methodology as described by Julia Cameron in her book The Artist’s Way.
But this is different.
Once a week, it’s good to take a step back and instead of focusing on daily tasks/insights, think about your progression over the longer-term.
What goals are you trying to accomplish as in investor? What’s your daily routine and how well have you stuck to that routine? What were your biggest wins and biggest learning experiences this week?
A regular review of your investment process can help identify where there may be opportunities for further improvement.
3) Clarify exit plans.
Even the most capable investors are still wrong. A lot. As legendary investor Peter Lynch described, “In this business, if you’re good, you’re right six times out of ten. You’re never going to be right nine times out of ten.”
Younger investors, who are used to doing well in school and getting lots of positive encouragement, are often ill-prepared for an industry where you are forced to eat humble pie with regularity.
Any time I make a recommendation or take a position, I ask myself, “What would I need to see to change my thesis?” I write that down. And I stick to it.
Ned Davis put it beautifully: “It’s ok to be wrong. It’s not ok to stay wrong.”
4) Read more timeless content.
It’s so easy to get caught up in clickbait-y short-term oriented news and social media. Way too easy. The most successful investors I’ve known are voracious readers. And they don’t read Twitter all day. They read books that have stood the test of time.
You have to commit to making the time to read books like Mastering the Market Cycle by Howard Marks and Poor Charlie’s Almanack by Peter Kaufman.
(Note to self: write a new post on “timeless investing books” because life is too short to read bad books.)
The best thing about investing is that you can always be a student of the markets. No matter how long you’ve been in the financial world, the markets will always have new lessons to teach you.
5) Write more timeless content.
This one may not touch every investor, but most of us need to write something for clients/readers/subscribers/customers at some point.
As a market behaviorist and financial commentator, I’ve discovered a passion for sharing perspectives. To be honest, it’s very easy to drop a Tweet about a random chart that comes across my screen.
But how helpful is that, really?
If I believe in the value of reading timeless content, then I need to believe in the value of producing timeless content. The truth is that writing good, thoughtful, timeless content takes time, energy, and discipline.
To be honest, writing good content is hard. But all good things usually are!
Now comes the really challenging part- actually applying lessons like this to your own daily and weekly routine. What one step can you take today to bring a more mindful awareness to your investment process?
RR#6,
Dave
Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. Please see the Disclaimer page for full details.