The Mindset of a Successful Stock Investor

By S Mcleod

If you want to be a successful stock investor, it is important that you develop the proper mindset. You can learn all of the strategies and techniques involved with picking the right stocks. However, investing in stocks is just as emotional as it is fact based and if you don't have the right mindset from the beginning, the emotional aspect of investing in stocks will defeat you every time. Here are a few tips to help you develop the mindset of a successful stock investor.
To be a successful stock investor one of the first mindsets you need to develop is the mindset of a professional baseball hitter. In baseball you can strike out 7 out of 10 times and still go to the hall of fame. The stock market is very similar to baseball in this regards. You can be wrong in your stock picks most of the time and still make a lot of money. The key is to recognize when you are wrong quickly, cut your losses and reinvest in a new stock.
Suppose you had a portfolio of $10,000 at the start of the year. Your first nine trades were losing trades over a 12 month period. You cut your losses every time at 10%. Your portfolio would be down to $3487. That's a loss of over 60% of you original portfolio. Is this a complete disaster? Now let's suppose on the tenth trade you were correct. The stock runs up 1000% over the next 12 months (this has happened before on numerous occasions). At the end of that 12 month run up, your portfolio would be worth $34870. Your portfolio has increased 300% over a two year period DESPITE the fact that you were wrong NINE out of TEN times!
As a successful stock investor, you also must have the mindset of a man that is afraid of making a commitment to be in a monogamous relationship. You must never marry a stock. Successful investors always have stocks that they will sell if the stock begins to show trouble signs. For example if the company normally produces quarterly earnings increases of 100%, 200%, etc and then for two consecutive quarters, they report quarterly increases of 10%, 25%, that is a huge red flag to sell. Such a dramatic drop in earnings increases probably indicates the stock is about to take a turn for the worst. Also if you notice that the stock's 200 day moving average on the chart starts down trending instead of up trending, this is another sign that the stock may be in trouble. Unsuccessful investors hold on to their winners. Successful investors have no problems with dumping their winners.
Developing the mindset of a successful stock investor takes time, commitment and an investment in your education. Read books written by and about successful stock investors. Look for chances to practice some of the techniques that you learn. Keep track of what you are doing. Note the trades that worked out well along with the trades that failed to work out in your favor. By doing these things you will develop the mindset of a successful investor and your portfolio will thank you for it.
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