Successful investing is all about understanding the big picture and about rising above the daily noise of the markets. Understanding the big picture means understanding financial history. Studying financial history reminds you that markets move in cycles. Some of those cycles are seasonal, political or linked to the latest hot investment theme. 10 years ago, it was the “China miracle, 5 years ago, it was 3D printing and last year, it was FAANG stocks and cryptocurrencies. Tomorrow, it may be artificial intelligence.
But successful investing is also about discipline and psychology. If you are not disciplined enough or are psychologically not capable of following the rules of the best trading system in the world, you won’t make any money. The weakest link in any financial trader is his psychology.
The winning formula is: History + Psychology = Patience
The importance of history and psychology is perhaps best expressed as the virtue of patience. Limit the number of ideas you act on. Do nothing, unless there is something to do. Wait until there is money lying on the table. Then simply pick it up.
Successful investors such as Jim Rogers and Warren Buffett do exactly this. They try to “shoot fish in a barrel” (Rogers) or “wait for the fat pitch” (Buffett). Rogers and Buffett know history and both have the psychological discipline to be patient.
Sven Franssen