Finding Success as an Investor Comes Down to Changing Your Mindset
The following is adapted from FOOLISH by Gil Baumgarten.
The key to succeeding as an investor is to have the right mindset. To put it as concisely as possible, you have to move away from a scarcity mindset and into an abundance mindset.
The good news is, you can prepare your mindset to be successful. The first step is to understand what you’re up against because there’s no point in trying to hide from the boogeymen who haunt you.
The question then becomes, what does a mindset change look like? The aim here is to develop the ability to digest trauma and not allow it to affect your next decision. When you can get past how you feel about something, you make better decisions. This is what puts superior investors in a category by themselves.
Look for Opportunities Where Others See Disappointment
One of these superior investors was an old client and great friend of mine, the late Ross Kyger III. Ross had tons of great qualities about him, the most endearing being how inherently reasonable he was. He claimed that came by way of a “lifetime of evaluating disappointment,” which is exactly what made him such a great individual investor. He learned from the emotional frailties of other investors and saw that their generally unreasonable expectations would allow him great opportunities.
Even if you aren’t as “inherently reasonable” as Ross, you too can develop this counter-intuitive mentality, though the process is not easy. It involves serious introspection and adaptation. But the end result is invaluable: it keeps you from misery, the investing reality for so many people. They feel their situation is tenuous, they take on more risk than they should, they lose a large sum of money, their hopes and aspirations go up in flames.
Ask Theranos shareholders what they think about the blood-testing company that used fraudulent data to build a multibillion-dollar business. Their deceptive practices were found out and the entire company basically blew up. The shareholders walked away duped, damaged, and depleted.
Ask any Enron shareholders from 2001 what they thought about their $90 share price plummeting to less than $1 over a matter of months. Same deal.
These types of war stories get grouped together and lead us to believe that anything good will go bad, and give credence to the stories about how dangerous stocks are to our net worth. Of course, all of this contributes to self-destructive tendencies, emotional distress, anxiety, and a host of potential problems investors find themselves dealing with — unless they learn a better way.
Be Ready for the Curveballs
One of my company’s most important practices is to coach people through the erasure of prior habits based on erroneous thinking and the desire to “beat the market.” What does that erroneous thinking and desire to beat the market look like?
Rather than diversifying, aiming to match the market with the fewest disadvantages, people swing for the fences over and over. Every time one of them gets up to the plate, they point their bat to the outfield and say, “This will make up for that Theranos deal,” or maybe they go deeper: “This one’s for you, Dad,” or, “This one’s for all the times people thought I wasn’t smart.”
The desire to make up for insecurities, wounds, and fears gets people wound up tightly as they make their way to bat. Here comes the pitch! Curveball. Swing and a miss.
Investors should prepare for curveballs before they even get up to the plate. They have to understand that the real game is played by bunting and hitting singles, and even being willing to get hit by the ball once or twice. If you want to score runs, do it base-by-base.
Unfortunately, most people want to stand up and swing hard at every pitch so they can be the next Babe Ruth and break all the home run records. But that isn’t the way to win ball games. In the end, portfolios will stand the test of time by how many runs we score, not by how many home runs we hit.
So, there is hope. You can hold a philosophy and perspective that will give you the confidence to get out of the dugout, and walk up to the plate to bunt and make base-hits. Who knows, you could even “win” the game you’ve always wanted to, just not the way you thought you would.
For more advice on how to develop the right investing mindset, you can find FOOLISH on Amazon.
Gil Baumgarten, one of the nation’s top financial advisors, is the Founder and President of Segment Wealth Management, an RIA financial advisory firm. Since its inception in 2010, Segment Wealth Management has grown to a top-ten firm in Houston, as recognized by the Houston Business Journal, with over a billion dollars in client assets under advisement. Gil is also a nine-time recipient of the Top 1,200 Financial Advisors distinction and has been ranked among the thirty-five best advisors in Texas by Barron’s. Distinctions aside, Gil’s affinity for precision and detail reveals itself in his daily life as well. He is an avid outdoorsman, award-winning woodworker, and attentive family man, friend, and colleague.
