Co-authored with Treading Softly.
When I was a child, I had a terrible habit.
We all have had terrible habits at some point in our lives. Some people find smoking a horrible habit that they want to break, but they find it difficult to do so. Others eat unhealthy, spend too much, or procrastinate. A study once determined that it takes about 30 days for a new behavior to break an old one.
Many people find that replacing an old behavior with a new one is easier than simply stopping an old behavior. That’s because we need something to occupy our minds. It is better to be doing something instead, rather than just sit around thinking about the thing we want to stop doing.
What was my terrible habit as a child? I’ll let you in on a personal secret. I had a bad habit that if I didn’t excel at something the first time, I would never do it again. In some regards, I would refer to myself as a “quitter.” It was a habit that I had to learn to break.
As I got older, I realized that in life, many great, fun activities or skills that I needed to develop would not be naturally easy for me. I’d have to work on them to fine-tune and hone those skills. As a child, I’d quit. I throw my hands and say, “I’m done.”
It’s not surprising that many become quitters when it comes to the market, and we’re dealing with people’s hard-earned money. It’s easy to feel like a genius or a champion in a bull market when everything is climbing and everything seems wonderful. It’s brutal to be riding through a bear market, doubting your skills and abilities or the method by which you’re investing. You go from feeling like you can do no wrong, to feeling like everything you do is wrong.
When you log in and watch your portfolio turn red, decline, and fall every day, it is discouraging. For many, they never got into the habit of investing – they simply did it as a side activity. This means that, instead of developing good, lifelong habits, they become quitters who capitulate amid a brutal market. All too often, selling at or near the bottom.
So today, I want to look at some bad investing habits you need to quit and habits you should learn to do instead.
Let’s dive in!
Quit Being a Hostage To Your Portfolio
The saddest retirees that I talked to are ones who feel that their portfolio is running their life and that their life is held hostage to how their portfolio is doing day-to-day. These will be the same retirees who log in daily to look at their portfolio’s value and see how their portfolio is doing vs. the market. They never seem to be able to take a vacation from this. After all, they need to be prepared to trade in or out at a moment’s notice.
In essence, their portfolio has become their hostage taker, and through Stockholm syndrome, they start to believe that their portfolio is there for their benefit.
I’ll let you in on a little secret: the market doesn’t care about you. It doesn’t care about your retirement. It doesn’t care what your portfolio’s value is.
There’s a famous quote by Francis Bacon that states:
“Money is a great servant but a bad master.”
I happen to agree with the sentiment here wholeheartedly. If you’re letting your portfolio determine how your day is going to go, and allowing the markets’ change to determine how your retirement is going, you have made money your master, determining your future.
That is a terrible place to be.
I would recommend that you immediately quit this behavior and replace it with another. It will cause you to become a short-term and short-minded trader who seeks desperately to preserve their capital, all while doing the exact opposite and eroding it. More failed trades and mistakes have been made in the market under the name of “capital preservation” or trying to stem losses than there has been any other type of trade. The more you try to hold onto your money, the more it will slip through your fingers.
Money is a tool, and the Market is a tool you can use to put your money to work for you. Make your money work, so that you don’t have to.
Quit Trying To Game The Market
Technology has been both a blessing and a curse to our society. Interestingly, we’re more connected than ever with various social media platforms and tools. We are able to reach across the entire globe and connect individuals that we never would have met previously. However, our society is also the most disconnected it has ever been. People frequently report feeling more lonely than ever, even with access to the entire universe at their fingertips. Sometimes accessibility causes more problems than it solves.
Regarding the market, investors are more prone to buy, sell and trade rapidly than ever before. The average holding time of a security has fallen into weeks versus months or years that it was previously. This is because we can whip out our cell phones, open up an app, and make a trade in a matter of seconds. It usually takes longer than that to process your emotions, create a rational opinion, and apply that opinion to the market. So we’re making emotional trades, not logical, rational ones, and large companies with algorithms are taking advantage of that emotional stupidity that we all have.
Every trade you make exposes you to their benefit. While you’re trying to game the market in those short-term, quick trades or flips that you’re doing – the market is gaming you. You’re against the House, and the House is winning.
We all love to hear about successful traders. However, we rarely hear about them repeatedly. When they hit a home run, we learn about them. But, when they begin to fail, we don’t often follow them. Successful traders come and go because their victories are few and far between, and not because they’re repeated over and over.
If you’re building your retirement based on the hope that you can score a big trade, like those past traders, you have to remember that for every one of those, countless millions have tried to play the market, only to fail.
Trying to game the market is why the stock market is often viewed as a place of gambling, not a place of measured success.
It’s time to quit that habit. Forget trying to “beat” the market with slick trades. Fall into the habit of investing in companies that will provide you with consistent and recurring returns.
Start Employing the Market to Your Benefit
Not every person is an outstanding boss, even if they are amazing employees. Some personalities are better suited to be front-line employees than to be in top-level management. Knowing the best place for yourself is often the key to success in your career.
As I’ve said, money is a terrible boss, but you know what it is? It is an excellent employee. Nothing makes money quite like money does.
So instead of allowing the value of your portfolio to be the determining factor on the outlook of your retirement planning – making it the boss of your retirement – choose instead to put that capital in your portfolio to work as an employee earning you more money.
I achieve this through our unique “Income Method,” earning +9% yield on my portfolio. Instead of trying to game the market, I use the market as an employee. I take the capital that I have earned through years of hard work and invest it in securities that will pay me for my ownership. This way, my money continues to work hard and earn more money. This helps to stave off and kill the second bad habit we uncovered.
Furthermore, with my capital working and earning me money, I no longer have to worry about the value others have assigned to the capital I’ve put into the market.
I find this similar to owning a home; very few people look at the daily value of their home and decide to sell it simply because it started to fall while still living there. The value of your home is most important on the day you buy it and the day you sell it. The values on the days in between is an irrelevant piece of trivia.
Likewise, with a holding in my portfolio, I consider its value at the time that I buy it, and I consider the value at the time that I sell it. In the intervening months and years, as long as the company is fundamentally operating as it should and continues to provide me with excellent income, those daily gyrations in value mean little to me.
Have you ever had an employer ask you your net worth and fire you if it’s gone down over the last six months? Of course not! The value of an employee to a business is their contribution to the cash flow that the business is generating year after year.
The goal for income investors should be to see a consistent and steadily growing stream of income flowing into their accounts from the market as those employees continue to earn more money. The value of your portfolio is not the theoretical price you could sell it for this second, unless you actually intend on selling your entire portfolio this second. The value your portfolio provides for you is recurring cash flow.
Send your dollars into the market to work and generate dividends. Dividends can pay for your retirement, and you don’t have to worry about what the “value” is of those employees day by day. You simply have to be concerned if they’re doing their job and making you money. If they are, you’re free and back to the golf course or maybe that Alaskan cruise you’ve been dreaming about.
That’s the beauty of our Income Method. That’s the beauty of income investing.
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