When it comes to investing, learning what you are supposed to do is relatively easy. As they say, it is not rocket science. But doing what you’re supposed to do can be surprisingly hard.
A key quality that separates top professionals in the world of financial investing from the rest of us takes years to develop: emotional self-control. Our emotions interact with news and market events in ways that incline us to act at exactly the wrong time. Theoretically, when it comes to the stock market, we all want to “buy low and sell high,” but emotionally, it is difficult to do either. Experience shows most investors do the opposite.
When the market reaches historic highs, we feel optimistic and reluctant to sell, thinking even greater earnings lie ahead. And when the market is low, negative emotions tend to dictate our response. Fears increase, as do our anxieties, so investors choose not to act at all.
In my publication, Sound Mind Investing, we do notrecommend attempting to buy and sell at market lows and highs. We mention it only to point out the need to exercise self-discipline in overcoming our emotions and becoming effective money managers. Here are a few suggestions for how to grow in that area:
- Be humble. Realize “there is nothing new under the sun,” and the instructions God has given in the Bible have proven to be practical and effective. There is safety in following the priorities and guidelines He has provided for our protection. Avoid having more confidence in our own thinking than in His.
- Be conscientious. See yourself as caretaker of the resources God has given to you. Acknowledge taking undue risks jeopardizes His wealth. As followers of Christ, financial investing is not for ourselves alone – we should strive to responsibly increase our assets to give more generously.
- Be prepared. Develop a written plan laying out your investment strategy, reflecting your personal goals and desired level of risk. Understand how all the parts of your portfolio fit together and the role that each part plays. Then let buying and selling be dictated solely by your plan. Initiate, do not just react.
- Be content. A preoccupation with large profits can be dangerous, as 1 Timothy 6:9-10 states: “People who want to get rich fall into temptation and a trap and into many foolish and harmful desires that plunge men into ruin and destruction. For the love of money is a root of all kinds of evil.” Be reasonable in your financial ambitions. Surely, more money is lost due to greed than any other single factor.
- Be diversified. Make sure your plan divides “your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth” (Ecclesiastes 11:2). Higher profits can be made by concentrating your money in one or two opportunities, but staggering losses can also be incurred. By avoiding the temptation to concentrate your holdings, no loss will devastate you.
- Be patient. Taking a cue from the Jesus’ “parable of the talents” (Matthew 25:14-30), where the master was away for “a long time” – adopt a long-term strategy emphasizing get-rich-slowly. This allows you to cope with up-and-down market cycles. Time is an enemy to the speculator, a friend to the investor.
- Be accountable. Show your plan to your spouse or a trusted Christian friend, and review it with them quarterly to show how you are being faithful in following it. The temptation to take steps outside your strategy will be tempered by the realization they will hold you accountable.
Taking these steps will help ensure you are honoring the Lord and His priorities as you strike a balance between the risks and rewards of the marketplace. As God says in Psalm 32:8,10: “I will instruct you and teach you in the way you should go; I will counsel you and watch over you….”
Austin Pryor has more than three decades of experience in advising investors and is founder of the Sound Mind Investing newsletter and website, www.soundmindinvesting.com. He lives in Louisville, Kentucky, U.S.A.
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1. Do you agree that in terms of financial investing, learning what you should do might seem relatively easy, but actually doing what you should do is very difficult? Why or why not?
2. How in your opinion – either from personal experience or observation – do emotions affect financial decisions?
3. What do you think about the idea of consulting God and principles given in the Bible for guidance in both personal and corporate financial management? Explain your answer.
4. Which of the “Seven Steps to Disciplined Investing” seem most difficult to you?
NOTE: If you have a Bible and would like to read more about this subject, consider the following passages:
Proverbs 13:11, 15:16, 23:4-5, 28:20, 30:8-9; Matthew 6:19-21, 25-34