Emotion. This morning we woke up to the radio announcing the DJI was up 300. We had a sudden surge of happiness, followed immediately with a stern lecture. “You should not allow your emotions to have any place in your investing decisions!”
The market closed up 291. It has gone crazy again. Or it is just returning to the mean.
The point is, if you have arrived at an investment strategy that fits your finances, psychology and objective criteria (return on investment, dividends, good management, whatever), you should just stay calm through the storms of the daily moves.
Do we? Of course not, but we try.
Here are the basics for developing an investment strategy:
1. Start an emergency fund of 3-6 months expenses, a la Dave Ramsey.
2. Start another fund of the same kind. While you are doing that, research companies to invest in.
3. When you get the investment fund accumulated, say $5,000, or $1,000, or wherever you decide,
4. Find a discount broker you have confidence in (long-lived, reputable, local office)
5. Now, buy as many shares in one or two solid, growing, reputable, long-lived companies as your fund allows.
6. Rinse. Repeat. Review holdings regularly – especially management changes.
That’s all there is to it! See? No emotion, just calm, cool, calculated development of a good savings plan.