Many new investors I meet in my classes totally flip around Dr. Einstein’s approach. They have an unstoppable inclination to jump right into the market, metaphorically speaking. They’ll trade impulsively for the first 55 minutes and then allocate the last 5 minutes trying to figure out what just happened.
Humor me, please. Just go with this. Place your hands on the table, turn down the lights and let’s invite Albert Einstein to our séance to give us his advice. If it was indeed possible to “channel” him, I suspect he would suggest approaching the market’s first 55 minutes more like this:
1. You have accumulated certain assets. Ask yourself if they are safe. Dr. Einstein would challenge you to address asset protection, first and foremost. Issues such as insurance, estate planning, identification theft, tax planning, record keeping and the like. You have to secure what you've got.
2. Next, he would ask if you had thought through personal money management questions and committed yourself to a personal trading plan in writing. It’s shocking how few investors actually do this. Einstein’s objective here would be to make certain you grasp the full scope of the problem.
3. He would then question your organizational skills and ask whether you had the computer, accounting and information tools in placed to take on this moneymaking goal.
4. His next line of inquiry would focus on your background, beliefs and personal decision-making skills. Do you fully discern the individual traits necessary to take on the markets and profit from the experience?
5. He would no doubt question you about your market analysis methodology and ask if you’d tested the clarity of your vision. Have you paper traded your approach?
6. He would then examine the investing routine you've devised for yourself and dare you to prove that you've really got the discipline to follow it.
7. Finally, I’d expect Dr. Einstein to interrogate you as to where and how you expect to generate investable ideas. In doing so, he’d want to know how you plan to decipher the best ideas and decide amongst a number of attractive candidates.
Watching the minutes tick away, most investors would probably lose their patience at spending 55 minutes being challenged by Dr. Einstein to see if they correctly understand the investing puzzle at hand. But as one of the greatest minds in history, Einstein knew that success and failure in the last 5 minutes is entirely dependent on the foundation meticulously constructed in the preceding 55 minutes. The markets do not reward investors in proportion to the number of hours spent on investment activities. It only rewards execution. One can reap immense profits in a very short period of time if one’s execution is based on a thorough understanding of the challenges that markets will present. As they say, “You can work all your life to become an overnight success.” Nowhere is this cliché more true than in the investment arena.
Like Einstein, George Washington understood the importance of preparation. Some say that when young George was given 3 hours to cut down that cherry tree, he spent the first 2 hours sharpening his saw! Preparation and foundation are everything. Don’t short-change yourself.
Trade well; trade with discipline!
-- Gatis Roze