If profit is the only goal you have with investing, then you’re missing out on the bigger picture, writes Australian Investment Education’s Andrew Baxter.
Ask most investors what their primary goal is, and you’ll invariably get the same answer:
“I want to make a profit.”
Fair enough. It’s a very important goal. You’re not just playing the share market for a lark.
However, from my experiences of educating more than 50,000 people about investing and trading, more often than not, success comes when profit is not the primary goal.
Building consistency and confidence are more important.
Consistency as an investor
Let’s say you start investing and you happen to make some money in your first investment and it was pure luck.
The challenge with that is if you scale, you then have the ability to be scaling luck – which invariably runs out.
Whereas if you’ve taken the time to build a level of consistency over and over again (i.e. a process), the result will always follow. This is what we teach about having a trading plan that gives you duplicable results time and time again.
Sometimes they’re not going to work out, but there’s a way when you do the post mortem on that trade to assess what went wrong.
Was it a force majeure (a greater force)? An airplane dropping out of the sky? Or was it something that’s more systemic?
Confidence as an investor
Once you’ve got a process, the next thing is to help build your confidence by adhering to that process.
Your goal as a trader is very simple. It’s not to find trades or manage risk or make money. It’s actually just being able to follow your trading plan perfectly each and every time.
That only comes from a belief, which intertwines with the consistency of building that process.
When these two things are handled, you then become profitable.
Show me the examples
If I go back to my first client 25+ years ago, the first person I taught how to trade, I asked him what his goal was. He said “To make money” and I told him it wasn’t the right goal.
Institutions don’t teach you to trade that way. What they work on first of all is consistency. So let’s work through that and buy really small trades where when you’re right, you might make $50.
When you’re wrong, you might lose $10. Do this over and over until you get consistent at it.
Build that track record, that equity curve, that belief that there is a process which is repeatable.
It’s like making a cake. There’s a recipe that you follow, and you follow it over and over until you get a very consistent cake. You might just make it for you and someone else. Then, once you’ve mastered it, you can start to scale and bake bigger cakes for more people.
It’s exactly the same thing. You’re just using more ingredients.
Trading is the same. Over a period of time, that client I was talking about would make $100 profit on the trade, then $200, then $500, then $1000, then $5000.
But why can’t profit still be your primary goal?
What we’re doing is building up belief in the consistency in your process. This builds confidence and ultimately leads by default to profitability as an investor.
Try and build it the other way around where you’re just aiming for profit without doing the work – it’s like building a house on wobbly foundations.
When times get tough those foundations collapse and the whole thing is game over and chances are you lose money and you never invest again because the stock market doesn’t work.
It’s not the stock market that hasn’t worked – it’s the approach you’ve taken which has been focused on a goal which is not the right primary goal when instead it should have been about building consistency and confidence.
Building consistency and confidence in practice
This, more than anything, is what we focus on teaching – how to build trading plans and create that bulletproof confidence in yourself as an investor because you’re doing things like post mortems when a trade goes wrong, analysing what happened and how you can fix it next time.
It’s a biometric feedback loop that runs like this:
- We can take ACTION.
- Which leads to an OUTCOME.
- Which we can EVALUATE.
- We can REVISE.
- Then take MORE ACTION.
As a starting point, here’s your feedback loop. Image: Your Money & Your Life.
The idea of this is very simple. If you’re constantly looking at what you’re doing – checking the outcome, evaluating and revising, what you end up with is these growth circles where you see profit and everything else is growing.
Here’s your first growth circle. Image: Your Money & Your Life.
If you don’t do this, what can happen is you take a trade, it doesn’t work, you’re upset, you failed to revise it, you took action again, then it reinforced that “it doesn’t work” until you stop and give up.
It doesn’t have to be that way.
Building consistency and confidence are the major fundamentals for any successful investor in markets, because once you have confidence in that process first, the outcome of profitability follows.
Find out more about Australian Investment Education‘s range of courses and coaching, mentoring and advisory services to help secure your financial future here.
This article is brought to you by Your Money & Your Life in partnership with Australian Investment Education.
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