You’re on a roller-coaster ride and you are climbing that huge crest. Each screeching chug upwards adds more excitement than the last. Full of wonderment, you think “Is this excitement ever going to end?” Just then you take a tumultuous plunge down, which feels nothing like the exhilarating ride upwards, and you have that unwelcoming feeling of losing your stomach; your fight or flight reaction kicks in.
If you’re a market investor this ride might sound awfully familiar, but it wasn’t at the Behemoth rollercoaster at Canada’s Wonderland. You remember opening your investment statement after another market correction and that awful sinking feeling that you had.
Lessons From The Great Michael Jordan
When I think of great performers, the first thing that always comes to my mind is sports. This has most to do with my upbringing than anything. Does the name Michael Jordan ring a bell with anyone? As far as I’m concerned, not many people dominated their sport quite like he did. But why was MJ so special that he stands out in a crowd of other gifted athletes?
For me it’s MJ’s ability to deal with high pressure situations and consistently perform at a high level. Yet his successes never came without his fair share of adversity. Take as an example the time that MJ was cut from his varsity high school basketball team. Watching MJ play, I saw someone with straight up mental toughness, resisting panic in high pressure situations, and able to hit the game winning shot. I can’t tell you how many times I’ve watched athletes wilt under the pressure of a big-game situation.
If we can learn anything from Michael Jordan, it’s that mental toughness can and does often lead to success. And yes, we can apply this same principle in so many facets of our lives. But let’s talk about investing for a second.
The Man, The Myth, The Legend; Peter Lynch
Ever heard of Peter Lynch!? For those who haven’t, Peter Lynch is an infamous investment manager worth a very notable mention. He was a portfolio manager for Fidelity Investments running the Magellan fund in the US from 1977 – 1990. His successful tenure running the fund included a resounding average annual return of 29% (1). Not bad. However, there is a popular urban myth that suggests that the average investor in the Magellan fund lost money over this same time period.
From experience, I’ve seen that individual investors are certainly susceptible to making investment mistakes. Here are 3 simple rules to follow to invest like a pro:
1. When times get tough, don’t panic – Dig deep and resist making a “knee-jerk” reaction when your mind goes into fight or flight mode during a market correction. Most investment mistakes are made during the top and at the bottom of market cycles. Mental toughness and strong rational thinking will help you prevail.
2. Buy Quality – If you hold quality investments and avoid chasing the latest investment fad, you should be rewarded over longer periods of time. Quality does matter.
3. Stay Diversified – Diversification allows you to spread investment risk over many asset classes and geographies. Similar to the “don’t put all your eggs in one basket” idea.