Understanding Stocks

WHY INVESTORS LOSE MONEY 163
Mistake #5:You Are Unable to Be Both
Disciplined and Flexible
Almost every professional investor will rightly claim that a lack of discipline
is the main reason that most people lose money in the market. If
you are disciplined, you have a strategy, a plan, and a set of rules, and
no matter what you are feeling, you stick to your strategy, plan, and
rules. Discipline means having the knowledge to know what to do (the
easy part) and the willpower and courage to actually do it (the hard
part). It means that you have to stick to your strategy and obey your
rules. This has always worked for successful investors and mutual fund
managers.
Although the pros are right in claiming that you need discipline if
you are to be successful in the market, you also need to balance this
with a healthy dose of flexibility. Some investors were so rigidly disciplined
about sticking with their stock strategy that they didn’t react
when the market and their stocks turned against them. In the name of
discipline, many investors went down with the sinking ship. Discipline
is essential, but you must be realistic enough to realize that you could
be wrong. You have to be flexible enough to change your strategy, your
plan, and your rules, especially if you are losing money. For every rule
and strategy, there are exceptions. It takes a really exceptional investor
to be both disciplined and flexible.
Mistake #6:You Don’t Learn from Your Mistakes
Most experienced investors and traders know that you learn more from
your losers than from your winners. One of the worst things that happened
to many novice investors in the late 1990s was that they made
money in the market too quickly and easily. When the easy money
stopped and the market plunged, many of them had no idea what to do
next. Why? They didn’t know how it felt to lose money. Because they
had made money the wrong way, they were destined to give it all back.
Losing money can be good for you (as long as you don’t lose all of it).