HH Discipline: A Necessary Condition For Successful Investing

If you’re a masochist, the implication for you is that you should check the value of your portfolio as frequently as humanly possible. For the rest of us, the implications are many. First, the more frequently you check your portfolio, the less happy you are likely to be, as well as less able to enjoy your life. Second, all else equal, the less frequently that you check the value of your portfolio, the more equity risk you should be able to take. Third, the more frequently you check your portfolio, the more tempted you will be to abandon your investment plan to avoid pain.

The bottom line is that if you cannot resist frequently checking your portfolio’s value, you should be more conservative because you will be feeling the pain of losses more frequently. Feel enough pain, and even the most well-thought-out investment plans can end up in the trash heap of emotions.

There’s another important message here. The less you watch and/or read the financial media, and the less you pay attention to economic and market forecasts (because they can cause you to imagine pain), the more successful investor you are likely to be!


Warren Buffett has accurately stated that “investing is simple, but not easy.” (outlined in great detail by Wes, here) The simple part is that the winning strategy is to act like the lowly postage stamp, which adheres to its letter until it reaches its destination. Similarly, investors should stick to their asset allocation until they reach their financial goals.

The reason investing isn’t easy is that it can be difficult for many individuals to control their emotions (greed and envy in bull markets and fear and panic in bear markets). In fact, I’ve come to believe that bear markets are the mechanism by which assets are transferred from those with weak stomachs and without an investment plan to those with well-thought-out plans—meaning they anticipate bear markets—and the discipline to follow to those plans.

A necessary condition for staying disciplined is to have a plan to which you can adhere. But that’s not sufficient. The sufficient condition is that you must be sure your plan avoids taking more risk than you have the ability, willingness and need to take. If you exceed any of those, you just might find your stomach taking over the decision-making. If you don’t have a plan, develop one. If you do have one, and it’s well-thought-out, stick to it.

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