7d • General discussion
Day in a life of an "investor" Part 2
A few days ago, I shared how a day in the life of an "investor" is about following the system to the T. Here's the last email if you missed it
So let's continue with this topic and explore what happens if I lose money
It is important to understand what happens when I lose money because for monthly passive income, the win rate is 90-95% of the time
For long-term investing, the percentage of up candles in the market is around 70% and the percentage of down candles is around 30%. This means out of 100 weeks, I may experience 30 weeks that are down.
Because the probability is >50%, this still means my investing strategy is very profitable
When it comes to losing money, it is all about emotions.
1) My doubts for the system
2) My ability to hold on
3) My ability to stay calm and not panic
4) My ability to perhaps I can outthink my own system and make discretionary trades to "get away with it this one time"
Those are all dangerous thoughts that must be addressed and systematized.
This is why I place a lot of controls around myself to ensure I am executing the system correctly.
Reducing any ambiguity in the system.
I am rewarded not for making money but for following the system.
If my system says I should make +3% this week and I make +3%, that's great
If my system says I should make -2% this week and I make -2%, that's great
If my system says I should make +3% but I make +20%, that's not good, even though I made money. Because once I deviate from the system, I can no longer review and refine my own track record without collecting years of data on "discretionary trades"
That was the key insight there. So make sure you read it a few times.
As a "human being", we all feel emotions and can get emotional. But what's important is your ability to follow and execute a system, not by discipline or motivation but by placing proper controls and incentive structure.
Cheers,
Eric
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Eric Seto
Chartered Professional Accountant (CPA)
Chartered Investment Manager (CIM)
Founder of 5MinInvesting.com
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Day in a life of an "investor" Part 2
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