By Robert S. Bacarella | June 24, 2020
“A good hockey player plays where the puck is.
A great hockey player plays where the puck is going to be.”
– Wayne Gretzky
Even many non-sports fans are familiar with hockey legend Wayne Gretzky’s famous quote about playing “where the puck is going to be.”
What would playing “where the puck is going to be” mean in investing?
Anticipating where the market is going isn’t easy, especially over the short term. Guessing market direction, unless you have a crystal ball, is usually not beneficial to your financial health. However, the longer-term market direction is more predictable as you have history and time on your side.
Time, as your friend, allows you to follow a more patient and disciplined investment approach. This approach coupled with the right “mindset” will help you know where your future is going to be.
The right mindset generally includes thinking long term, knowing to remain calm during periods of high volatility, rolling with market trends and looking for buying opportunities when many investors are panicking. People with this mindset know personal investing isn’t rocket science. Rather, it’s a simple concept of putting your money to “work” with the objective of increasing its value over time.
Also, people with this mindset tend to hold diversified portfolios, invest in quality companies, and are prepared to act when given the opportunity.
Mindsets that get in the way
Most investors never score because they do not have the right mindset. Following are a few common mindsets, in hockey terms, that get in the way of making good long-term decisions:
- Investing with the objective of making a lot of money, quickly…that’s basically looking at where the puck is now and expecting to score. Thinking longer-term, or where the puck is going to be, increases your scoring percentage.
- Blindly trusting recommendations made by others…don’t expect others to score your goals.
- Thinking you know something that the market doesn’t… getting a breakaway shot (informational edge) may give you an advantage but doesn’t mean you will score. (In fact, only a third of breakaway shots actually result in a goal.)
- Thinking you can “time” the market for big returns…aggressive play could put you in the penalty box; better to avoid it altogether.
- Believing that you should dollar-average down on a bad investment…this is like continuing to play when hurt, which could lead to greater problems if not addressed now.
- Lastly, thinking you have to be an “active” investor for best results…instead, position yourself to take your best shot, not just any shot. Is it better to take 20 shots with no goals or one shot and a goal?
Getting started with the right mindset
Having the right mindset should help you avoid the most common mistakes made by most investors.
Anticipating where your financial future is going to be requires setting goals and following a well-defined investment strategy. Do not let emotions like fear, anxiety and panic get you out of the market, as history shows the markets will recover eventually. The idea is not to get rattled when markets dip but instead hold onto your investments and stay the course. If you can, use market corrections as buying opportunities. A fundamentally sound investment plan should start with a diversified portfolio and an automatic investment plan.
Remember, even Wayne Gretzky made many mistakes. He said, “Mistakes are made. But, fundamentally, if you’re sound, you eliminate as many mistakes as possible.” Finally, to quote Warren Buffett, “We don’t have to be smarter than the rest; we have to be more disciplined than the rest.” And a good mindset sets the discipline needed to achieve long-term goals.