Finance Belief #5: getting the timing right matters a lot less than you think. Listen to the stock financial gurus and you’ll hear a lot of talk about whether it’s the right time to get in or get out of a given investment, or a particular asset class, or the market in general. Millionaires believe that most such discussion doesn’t really matter most of the time. Sure, you can make a lot of money buying or selling at the right time. But most successful investors have come to understand that great timing is often as much about luck as it is about investment insight or market intelligence. Instead of worrying about pulling the trigger at exactly the right time, successful millionaires put their energy into other, more fruitful activities: identifying quality, undervalued investments; figuring out long-term socio-economic trends on which they can capitalize; optimizing their asset allocation to get them closer to their financial and life goals; and so on. Something to keep in mind the next time we find ourselves fretting about whether now is the time to buy, sell or hold. Belief #6: be honest with yourself about risk... With all of the excitement that often surrounds a possible investment idea, it’s fairly easy to disregard or downplay the possibility of losing money on a given investment. Millionaires don’t make this mistake. Before they put their money into any idea, they engage in an honest internal “what if?” dialogue with themselves: what if this goes wrong? What have I overlooked or ignored about this opportunity? What are other people thinking about this investment, and why? If things do go wrong, how could it impact other parts of my portfolio, or my ability to accomplish my life goals? By asking these critical questions about risk (and being brutally honest with the answers), they can often avoid getting into sticky financial situations in the first place. Belief #7: ...but remember, you can’t avoid it altogether. Closely related to the above: at the same time as they assess the risk of any investment, successful investors understand that without taking on at least some risk, there can be no possibility for investment gains. Instead of trying to avoid risk altogether, wealthy individuals learn to mitigate, minimize or offset risk whenever they can. They do a lot of research on any investment they consider (or hire professional managers and advisors to do it for them). They diversify their portfolios and offset big risks with hedging strategies. And they align the necessity of risk with specific investment goals – if they don’t need to take the risk to achieve what they want to achieve, they don’t take it. Above all, they make sure that every risk which they take is deliberate, well-understood and kept manageable relative to their overall finances. A good approach for all of us. Belief #8: you have to know yourself. Hard-won experience has taught most successful investors that wealth is something that is felt as much as earned: that behind the cold logic of numbers, projections and business analysis lies a whole lot of greed and fear, excitement and despair, optimism and anxiety – and these emotions often end up driving more investment decisions than the numbers do. This is why millionaires believe that it’s crucial to understand how to recognize and control those emotions and identify how they can short-circuit the rational side of one’s brain. By knowing how you react to market events and portfolio ups and downs, you can be on guard for emotions that disrupt rational thinking, generate cognitive biases and cause blind spots and miscalculations in how you assess opportunity and risk. This self-knowledge can make you a much better investor over time. Belief #4: not every investment works out. Get over it. Millionaires understand bear markets and corrections are inevitable. They realize some business ideas just don’t work out. And they know unexpected financial calamity can happen even to the most prepared people. But that knowledge doesn’t stop them from looking for the next opportunity, or make them fearful and risk-averse. Instead of cashing out and sitting on the sidelines for a downturn to be over, they maintain their focus on their long-term goals. Instead of waiting for a losing position to “come back,” they cut their losses and reallocate their funds to another idea. Their belief that even the best investors can’t get it right every single time prevents them from feeling defensive when one of their own ideas doesn’t work—which in turn helps prevent financial mistakes and missteps from becoming full-blown financial disasters. We should all do the same. 28 | www.snowbirds.org
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