Active investing is very different from passive investing and hence requires a different mindset for decision-making. Indeed, active investing requires a completely different mindset to any other kind of buying and selling that you have done in the past, e.g. household appliances, motor cars, clothes, etc. All your life you have probably been taught to buy at a discount and sell at a premium. “Don’t make decisions in the heat of the moment, take your time and buy and sell on your terms, not the other persons.”
This will not work in the market. Decisions have to be made quickly and on the terms that the market dictates. Buying low and selling high breeds a mindset of trying to “bottom-pick” stocks, which is a market loser’s mentality. High probability stock selection often requires that an all-time high price be paid to take a position in a market winner. Buy high and sell higher.
Whilst it is not written down anywhere, you more than likely have a process for buying household appliances and other commodities. If you don’t already you also need a process for buying and selling stocks.
Next week I’ll look closer at the Psychology challenge of Active Investment