Is it supposed to be this hard to make decisions? Why do I worry that my choice will not be the right one? Why can’t I act on what I know? Why do I doubt and struggle hitting the enter key to place my trade? Do questions like these and other keep running around in your head? You are not alone… a lot people hate decision making period, let alone when it comes to financial or investment decision making. Ask yourself this question: What routine do you use for making these decisions? If the answer is, you don’t have one, you may have stumbled onto the problem.
Unfortunately, even though we may not think we have a process or methodology, we do. It may be a habit that is not effective, efficient or successful, but we still have habits built in for making these types of decisions. Believe it or not procrastination can be part of the process or habit we have developed… unfortunately indecision is a decision! We all have habits and methods for making decisions sometimes it has been relegated to our subconscious, but we still use a process for making decisions. Take a minute, stop, think and write down what you do. There is not a right or wrong way we just need to bring it into our conscious mind so we can edit, tweak and improve the process to making better decisions.
The following are some steps I have learned to help me in the process of trading and investing decisions:
- Seek Advice: My first course of action was to learn as much as possible from those who have been successful in making good investment and trading decisions. In my early years of managing money I was fortunate enough to spend time with professional money managers at large Wall Street firms. I got to sit at the trading desks… watching, listening and learning what drove the decisions and how they executed those decisions. It was invaluable for me to learn. Find a mentor or teacher that can assist you in the learning process of making good decisions. If nothing else read books from great investors and traders who share the process, and then paper trade or practice with the process and learn to develop those habits that will work for you.
- Use a tetter-totter: This is my version of the proverbial scale. Weigh out the pros and cons of each decision. This is the old school method, but it works to keep your mind sharp and focused on what you are doing. The simple version of this is to define the why of every investment or trade. What is the reason for taking the trade. Define the time line for every trade or investment. Know what you believe and write it down. Use an excel spreadsheet to keep track of this process. Define the entry point (buy), the exit point (stop) if things don’t go according to plan and the target (sell or profit taking) for every position. This simple process helps you refer to why you bought it, how long you think it will take to achieve goal, where to get, where to exit if things don’t work out, and where you are going or what you expect to get from the investment. In addition it helps you measure the risk of every position in your portfolio. Good decision making is a matter of fact gathering, then planning based on the facts and then executing according to the plan. These are just good basic habits that keep our decision making on track.
- Take Time: Sometimes you just need to let things unfold and not rush. A very difficult lesson to learn in trading and investing is to be patient. This applies to both buying and selling positions in our portfolio. I rarely want to trade in the first thirty minutes of the market. Others they love to trade during this time. Find what works for your personality. It is key to understand yourself as much as what others do. We all learn in the process of doing, but it is important to learn what works for you. Sometimes we just need to walk away and leave it alone. Take a break, regroup, rethink our decision making and emotional influence. Take time to learn, know yourself, practice, and perfect the process that works best for you… but, you will find that patience remains one of those key ingredients in making good decisions.
- Sleep on IT! Sometimes I am exhausted from doing too much, not sleeping enough or life in general… The fatigue factor influences your decision making skills. No matter how disciplined you are fatigue has a way of corrupting your thought process. If you are tired… take a nap, take a break, but don’t let it impact you negatively in your decision making.
- Reflect, Review and Recap: All decisions are worth the time to review good and bad. What can you improve. What can you tweak? What did you do right? Make a list of questions and then review the process and learn. That said, don’t make that critical mistake of hindsight being 20/20! Remember in the case of trading you now see the full picture of news, events and influences… they weren’t there when you were making your decisions. Don’t critique with perfect vision. Note what you missed. Note what you saw but didn’t pan out. Note what influenced you that shouldn’t. Throughout the process be positive and focused. The goal of this reviewing process for me it determine how I could have made the process simple and easier to achieve my goal. Simple is always better.
Decision making is supposed to be fun. It it the time we get to put into practice all that we have learned to this point in our lives, careers, relationships and school. Have fun with learning to make better decisions. Simplify the process and you will find it is more fun and successful. Avoid paralysis of analysis… it leads to indecision… which is a decision. Focus on what you want and each decision takes on a new meaning and process. Last, but certainly not least – PRACTICE PERFECT!