Editor's note: These days, everyone has a wealth of information at their fingertips. You can use it to your advantage in the markets... But it can also cloud your thinking. Today, we'll continue our "new year, new mindset" series with a 2019 essay from DailyWealth founder Steve Sjuggerud on how to keep your investment plans on course...
I'm an unapologetic information junkie...
I can't get enough of the things I enjoy. I love reading about what's new and innovative. And I try to be on the cutting edge of my hobbies and interests.
Longtime readers know I'm a surfer and guitarist. I've been working on a degree from Berklee College of Music in my free time to hone my guitar skills. And I've spent the past couple years working on a new experimental kind of surfing called "foil boarding."
Of course, I get a lot of my information fix from the markets, too...
The financial news is a never-ending supply of new information. I've spent the past two decades parsing through it on a daily basis. It has become a way of life for me. And it's how I find new and exciting ideas.
I love sharing my findings with you. But this "information junkie" thing has a dark side, too – one you must be careful to protect yourself from...
Like it or not, it means I consume a lot of "current affairs" news. This is the constant noise that comes out of the media. (Reporters are always out to write a story, after all.)
Most of it serves little purpose... It's information, not knowledge. And only a small portion of it can lead to good ideas.
You've got to wade through all of it if you're going to find the good stuff, though. It's a matter of sorting out the useful from the useless.
That's tough, especially today.
There has been no shortage of current affairs to keep up with lately. It can be hard not to get caught up in it. I'm sure you know the feeling.
Even the smallest story can produce doubts like these...
- "Should I change my strategy?"
- "Does this latest news change how I should be allocated?"
- "Should I sell or buy more?"
For the investor, reading the news can be an emotional roller coaster. And I need to let you in on a secret...
For most of us, it doesn't get any easier.
We've all had the experience of a single story derailing our steadfast beliefs. It's human nature. You might think you're getting tougher, but it'll still take you by surprise every time. And when you're an investor, it can lead to fatal mistakes.
It can cause you to question your well-thought-out plans. Worse, it can cause you to act on impulse – at the worst possible time.
To beat this reaction, folks say you need to harden your heart... learn to be a stone-cold investor... learn how to shut off your emotions.
I gotta tell you, that's not going to happen. It sounds good on paper, but good luck implementing it... It's impossible for most people.
I say that from my own experience. I've been sharing my best investment ideas for more than two decades, and even I have trouble keeping my emotions in check from time to time. That's normal.
Hardening yourself into a stone simply isn't a viable strategy. Instead, you need a solid plan to help navigate the storm of information.
For most folks, figuring out when to buy isn't the hard part. But having a proper plan for when to sell – and sticking with it – is tough.
That's why I've been a proponent of stop losses for decades. A stop loss is a predetermined point at which you know you'll sell an investment. You might decide to get out if a stock falls 25% from its highs... Or you might choose a "hard stop" at a specific price (for example, a recent low).
Having a defined point for closing an investment is an important key to success. Too many folks see a bad headline, get spooked, and sell too early. Or even worse, they see a position fall, but instead of doing something, they hold and hope. That can lead to crippling losses.
It's OK to be an information junkie. And it's OK to watch the markets closely. But you can't allow that to creep into your investment decisions.
You've got to protect yourself from yourself sometimes. Having a defined exit, through a stop loss, is a simple but effective way to do it.
Knowing when to sell can be even more important than knowing when to buy. Make sure you're using this simple step to stick to your investment plan... Read more here: If You Fail the 'Two Stocks' Test, Try This Strategy Instead.
Sure, you can worry about the markets every day, comb the Internet for data, and trade in and out of stocks... But you might be working against yourself. Learn more here: This 'Coffee Can' Trick Could Help You Get Rich in Stocks.