#8 - Psychology of Money [Trading]

Investing or trading is not easy. There are so many things that affect you, your emotions, and your investment decisions....

There are many ways to become rich, but only a few ways to stay rich.

Yes, money is one of the eternal problems in human society. It is everywhere, it affects all of us, and it confuses most of us. Everyone thinks about it in slightly different ways. And it brings lessons that can be applied to many areas of life, such as risk, confidence, happiness, and investing.

Those who have been involved in the financial markets for a long time understand one thing: Investing is not easy. There are so many things that affect you, your emotions, and your investment decisions. A genius who can’t control his emotions can lead to financial disaster. The opposite is also true. Ordinary people with no financial knowledge can become rich if they master behavioral skills that have nothing to do with formal measures of intelligence.

Financial success is not a hard science (if you really look at success stories, you will see this). It is a soft skill, where how you behave is more important than what you know.

Yes, how you behave with your money is actually more important than you think. And in this article, I will share with you some short suggestions that can help you make better money-related decisions.

Warning: This is not advice on what you should do with your money, because I don’t know you. And, I don't know what you want, when you want it, or why you want it, so the following is just a suggestion, not investment advice. Take responsibility for your own money.

Table of Contents:

1. Try to find humility when things are going well and forgiveness/forgiveness when they are going badly.

Because things are never as good or bad as they seem. The world is vast and complex. Luck and misfortune both exist and are hard to define. Do the same when evaluating yourself and others. Respect the power of luck and misfortune and you will have a better chance of focusing on the things you can actually control. You will also have a better chance of finding the right role models to follow.

2. Lessen your ego, more wealth.

Saving is the gap between your ego and your income, and wealth is something you can’t see. So wealth is created by limiting what you can afford today in order to have more things or more options in the future. No matter how much money you make, you will never build wealth unless you put a lid on the jar of joy you can have with the money you have now, today.

3. Manage your money in a way that helps you sleep well at night.

This is different from saying you should aim for the highest return or save a certain percentage of your income. Some people can’t sleep well unless they have the highest return, others can only sleep well if they have invested conservatively. Everyone is different. But the foundation of “does this help me sleep at night?” is the best global guide to all financial decisions.

4. If you want to do better as an investor, the most powerful thing you can do is increase your free time.

Time is the most powerful force in investing. It can make small things grow and big mistakes disappear. It can’t neutralize luck or risk, but it can push results closer to where people deserve them.

5. Be okay with too many things going wrong. You can be wrong half the time and still make a fortune.

Because a tiny fraction of things have a huge impact on the vast majority of outcomes. No matter what you’re doing with your money, you should be okay with a lot of things not working out. That’s just the way the world works. So you should always double check what you have done by looking at your entire portfolio rather than individual investments. It is okay to have a large number of bad investments and a few standouts. This is normal in the investment world.

6. Use your money to control your time.

Because not having control over your time is a powerful and universal way to reduce your happiness. The ability to have what you want, when you want it, with whom you want, for the amount of time you want is the highest return you can get from investing in finance.

7. Be kinder and less boastful.

No one is as impressed with what you have as you are. You may think you want a fancy car or an expensive watch, but what you really want is probably respect and admiration. And it's easier to get that through kindness and humility than through ostentatious boasting.

8. Save, save, you don't need a specific reason to save.

It’s great to save for something you want, but saving for something that can’t be predicted or defined is one of the best reasons to save. Life is a never-ending series of surprises. And savings that aren’t earmarked for anything in particular are a hedge against life’s inevitable surprises at the worst possible moment.

9. Know the price of success and be prepared to pay it.

Nothing worth having comes for free. And remember that most financial costs don’t have a visible price tag. Uncertainty, doubt, and regret are some of the common costs you’ll incur when you enter the world of investing. Of course, they are things you should pay, but you have to see them as a cost (a price worth paying for something better) rather than a penalty (something you avoid).

10. Embrace room for error.

A space between what could happen in the future and what needs to happen in the future to be effective is what gives you stamina, and stamina is what creates cumulative magic over time. Leaving room for error often looks like a conservative hedge, but if it keeps you in the game, it will pay off handsomely.

11. Avoid extremes in financial decisions.

Everyone's goals and desires change over time, and the more extreme your past decisions are, the more likely you are to regret them as you grow.

12. You should love risk because it is worth it over time.

Be a little paranoid about destructive risk because it prevents you from taking risks that will pay off over time in the future.

13. Identify the game you are playing.

Make sure you are not being influenced by someone who is playing a different game than the one you are playing.

14. Embrace chaos.

Smart, well-informed, and rational people will often disagree about finances, because people have different goals and aspirations. There are no right answers, only answers that are right for you.

And you have the answers that are right for you.

Good luck on your journey to financial freedom.

P/s: Part of the article is taken from the book of the same name by author Morgan Housel.

Editor: TonyCapital Team

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