Wednesday, December 27, 2006

Game Plan: Third C - Courage

We would be discussing about the third C, "Courage". Commitment and Consistency are the pillars of your investment game plan but Courage is the foundation of these pillars. When markets go burst like in May and in December, only Courage will help you stay the course. Only courage can help you to follow your belief and your investment game plan i.e system. As we have seen in the previous post Game Plan: Consistency, to make probability work for you and not against you, You should have the courage to believe in your system, since its yours. This doesn't mean that we shouldn't learn from the mistakes we make. This means that you shouldn't avoid believing your system just because the market crashed and things like that which are not rationale.

Remember the tech bubble which got burst! People who had invested earlier where getting very good results. But you had after looking at company valuation (will tell later in the series, how to valuate a company), you decided that their fundamentals are not right. So you didnt invested in these companies, but looking at the returns your peers are getting, you start thinking that you have made a wrong decision.

So you enter into the market when the market is at its high and you loose all your money. This is the result of having no courage to believe in your methods. If you had courage to believe in your method and system, then you would not have invested into the tech sector. This is the worth of courage.

The biggest challenge in investing is to stay away from investing while others are printing money!!

Hence Step 1 is not about calculating your long term, medium term and short term goals. Rather its about fine tuning your mind to these set of values. Remember, stock exchange is not going to be closed tomorrow. Stop worrying that you may miss the bus. Stock exchange will remain there always but before the next bus arrives, be sure to make yourself learned enough to avoid missing the bus. You have to invest in yourself first, so that you have confidence in your methods.

Any financial planner can chart your long-term, medium-term and short-term goals. But if you dont follow the plan, will you be able to achieve your goals? You should have

Commitment to your plan,
Consistency with your plan
Courage to follow your plan

This will help you in the long term.

Quote of the Day:
The easiest person to deceive is one’s own self.
--Edward George Earle Bulwer-Lytton

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