This morning it's not about new trades or stocks that I want to get into and that are interesting. Today I would like to share my thoughts with you on a topic that is more about the learning process on the stock market and why many people find it so difficult not to implement what is actually logical in reality. I know that there are of course many people here who know everything I write. But one or the other of you may find it interesting and helpful.
So what distinguishes an averagely successful investor from a very successful one?
From my point of view, it can be summarized in one word: DISCIPLINE!!!
To understand this, let me look back a good 25 years to the birth of the Neuer Markt and technology shares. That was my most active time. Compared to what I traded back then, it's a fly in the ointment today. There were days when I lost or gained 40% (the highest daily loss) -60% (the highest daily gain) of my portfolio volume. How does that work? I ask myself the same question today!
But the reason was probably that I lacked something and that was discipline!
Today I always trade according to the motto: Let profits run! Limit losses! You can often read that in my posts.
Back then, especially during the decline of the Neuer Markt, I was quick to take profits, but I kept buying stocks that were down 30, 40 or even 60%, in the firm belief that they would have to rise again.
And to make it easier, especially for those who are not yet so experienced here and are still impressed by the returns sometimes achieved here, internalize this motto. It sounds banal, but it's not that easy to put into practice. I can see this from the fact that I am often asked in the comments on my trades, how long do you want to hold? I'm 30% up, I'm itching to take profits.
The thought process is absolutely understandable. 30% is a lot in a relatively short time, I want to secure that! If you want to do that and are happy with it, you can do it, but on the other hand you also have to say, I'm down 15%, I'm limiting my losses now and looking for the next entry point. Because how else can you achieve a better return than the market? But many people then start the process of buying more and reducing the price of their entry, or even worse, it will go up again, just be patient. Internalize this: A stock that goes down 50% has to double afterwards so that you only get to plus/minus 0. That is not an option for me. I am explicitly not talking about my high-risk derivative trades, where losses up to a total loss can of course occur. But that is factored in.
So my advice is to set a fixed maximum loss target for your purchases!!! If everyone questions themselves and is honest, most people don't have one! I am never asked about this either. You don't need a fixed profit target! What's the point?
Build in a hedge right from the start, at least mentally, e.g. 20% down is acceptable to me. If your investment then moves in the direction you have in mind, you can raise this limit. If a value exceeds your desired profit limit of e.g. 30%, you can raise the hedge up to that point. From my own painful experiences, I can tell you that maintaining discipline downwards is more important than upwards if you want to be successful in the long term.
And make sure that your expectations match the risk you are taking.
I often answer questions in the derivatives area with the answer that I am aiming for 100%. The answer is often that 30% would be enough for me. Honestly, it depends on the risk you are taking. If I choose a derivative with leverage of 10, which is a very high risk, I expect the share to make 10% so that I reach my 100%. If I only want 30%, I don't take a leverage 10 product, I take one with leverage 3 and sleep more soundly because I am taking a fraction of the risk and need the same share performance.
PS: I sleep well even with leverage 20! :-)
If you have any further questions, please feel free to ask. Perhaps it will help one or the other to develop a more successful way of thinking.
Otherwise, I wish you all a successful day, no matter what your plans are.
And have a great weekend! Even if this probably wasn't my last post for today!
Your Chris
