Financial alchemists are those with the ability to make gold of their investments. They appear to have the Midas touch. And we all clamor to learn their winning strategies. What I have not been aware of previously is that it is equally – if not more important – to find out about the way they think, their beliefs and behavior.
(Comic illustrator: Min, my 8-year old girl)
Successful financial alchemists have a lot in common, in terms of mindset, that we can also learn from. Knowing what these are can help us beat any financial market – whether they are trending upwards or downwards!
Allow me to share about my experience from the early years of my working life. It’s embarrassing just thinking about it. Well, I have previously spent a fair amount of money, time and effort into learning how to read equity charts, options trading and portfolio management. I even got a CFA (Chartered Financial Analyst) after studying for three years as my part time post-degree studies. CFA is a sought-after professional qualification in the investment field. Hey, I was booksmart! In the meantime and in the real world, I lost a lot of money (in five figures) from making some of the worst investment mistakes that anyone can think of. Luckily, I was trading with excess money that I had from my job and did not get into the situation of having to sell my possessions!
I have since learned how to tread more prudently. Have been burnt badly over and over again, I finally realized that it will help not to be rash or greedy but to take stock of my learning experience. More recently, I decided to take a closer look at what financial alchemists like Warren Buffett, John Bogle, Benjamin Graham and Peter Lynch can share about their values, thinking and behavior. I realized that they were no different from the everyday life tips that more of us can do with.
Learn The Art of Financial Alchemy
1. Emotional Mastery. It is obvious that making gold is only possible through mastering emotions. Their gains are often made because they are able to pick out opportunities where others have missed. They buy when no one is buying and sell when everyone else is buying. They are market leaders rather than followers.
“Individuals who cannot master their emotions are ill-suited to profit from the investment process.” – Benjamin Graham
“There is always something to worry about. Avoid weekend thinking and ignore the latest dire predictions of the newscasters. Sell a stock because the company’s fundamentals deteriorate, not because the sky is falling.”- Peter Lynch
The thing is to acquire the ability to manage your emotions such as fears and worries before putting your capital down. It may mean refraining from chasing the market with signs of overheating. You do not allow greed to cloud your clarity. Nor fear of running prices to take over your senses. You will be a more cool-headed investor if you are in better management of your emotions. I recall receiving the tip that when emotions goes up, intelligence normally comes down and vice versa from an investment expert.
2. Devise Your Own Strategy. Financial alchemists often share the secret of not going with the crowd. Their advice is to develop your own beliefs, strategies and system. Those who follow the herd without discernment are like sheep waiting to be slaughtered. They follow a litany of advice without being clear about their objectives. They tend to change their investment beliefs along with the market’s prevailing bias.
“Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway.” – Warren Buffett
“To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.” – Warren Buffet
If you are clear about the basis of your strategy, then you are less likely to be swayed by what others say. Hence, get clear and stay firm!
3. Practice Patience. Wise investors are usually very patient. They buy investments that are not popular or when there is a lot of fear in the market. They are contrarians. It is known that financial alchemists would sit out long periods of inactivity when they cannot find anything to invest. They knew how to prospect for gold. Their daily activities consist of being on the lookout for the right opportunity.
“Time is your friend; impulse is your enemy.” – John C Bogle
4. Practice Detachment. Financial alchemists are also adept at the art of losing. They practice detachment to their stocks if the market turns against them. They do not let their emotions get to them and are prepared to cut losses in an environment of falling prices. They do not hold on for longer than necessary to a losing position. They understand that to win, one must learn to lose.
“Operations for profit should be based not on optimism but on arithmetic.” – Benjamin Graham
I learned earlier on that when it comes to greed, nothing of good sense takes precedence. I have chased stocks based on empty rumors, misread the market and stayed on in a transaction longer than I should because of my inability to let go. False hope was what I hung on to. I would have reduced my losses if I wasn’t so attached to my “darling” stocks.
5. Use Imagination. It is important to use your imagination even though your current situation appears bleak. At appropriate turns, financial alchemists are able to conjure optimistic pictures of growth rather than get sucked into downright depression by listening to prevailing market news about the declining economy.
“If you do not see great riches in your imagination, you will never see them in your bank balance.” – Napoleon Hill.
6. Invest in Real Asset. According to Robert Kiyosaki, author to the best-seller “Rich Dad Poor Dad”, you create the most wealth when you invest in real assets. Real assets are those with fundamentals. They have value which appreciates over time even while there are temporary fluctuations. They produce income. Real assets also have a ready market.
Well, if you think about it carefully, you are your own real asset. The best investment that you can ever make is in yourself. You are the golden opportunity. Financial alchemists would also tell you the same thing.
“If a man empties his purse into his own head, no man can ever take it away from him. An investment in knowledge always pays the best interest.” – Benjamin Franklin
7. Spend Time Getting to Know Your Asset.Many of us hope to make quick money. We dream of hitting it rich with the right stock. The truth is that most speculators who do not spend time studying their financial instrument will end up with more losses than wins. Investments based on fundamentals in the long run usually outperform those with a lot of hype but no substance. My brother, a stockbroker, offers me the same advice every time I am tempted to “make a killing” through trading on penny stocks.
“Spend at least as much time researching a stock as you would choosing a refrigerator.” – Peter Lynch
This tip brings me to the point of knowing yourself well, since you are the real asset. Develop self awareness. Spend time getting to know your strengths, values, stress points and so on. In the process, develop a vision for yourself.
Make Gold of Yourself
I have come a long way since the days when I would punt the market. From having taken stock, I have managed to save myself from making more bad investment decisions. Then again, it’s not about making money quick anymore. It’s about taking wise decisions that would allow me a full life. By having the right mindset, values, beliefs and behavior, I hope to manifest an outstanding life for myself.
As a real asset, you do not just grow by intellectual knowledge. You become more valuable over time by assimilating truths. Any future value computation on self is likely to yield a positive result. Hence, start today! Make an investment in the right direction – transmuting into the gold of who you are. Need more tips? Download my book, Abundance Alchemy: Journey of Gold !