The Best Investing Strategy Feels Wrong—Here’s Why It Works
We all know the golden rule of investing: buy low, sell high. The goal is straightforward. Sell an investment for more than you paid for it. But why do so many people do the exact opposite? Because good investing goes against human nature.
Culturally, we want to be associated with things that are succeeding. When someone becomes popular or if there is a fashion trend that is in style, we want to become friends with that person, and we want to adopt that fashion trend so that we can be seen as accepted.
The same thing happens with investments. When we see a stock that's performing really well that's the one that we are drawn to, and we are not as drawn to stocks that are not performing as well.
The flip side is also true. When a fashion is no longer in style we abandon it. When someone we know is no longer socially acceptable, we may want to not be associated with them as much anymore! And when a high-performing stock starts to do badly, we want to get rid of it and chase the other one that's doing well.
When we see this: We Assume This:
When we see this: We Assume This:
(The green and red colors don’t help)
This emotional reaction is exactly why so many investors lose money. They buy at high prices out of excitement after things have already been good and sell at low prices out of fear when they are going down. The exact opposite of what they should be doing. Over time, that’s a losing strategy.
Trying to predict which investments will go up next is incredibly difficult. Most people who attempt to pick individual stocks fail.
And if you think short-term trading is the answer, consider this. Why do so many self-proclaimed “successful traders” make their real money selling courses instead of just trading? If they had a system that worked, they wouldn’t need to sell a $10,000 program. They’d just keep making money in the market. (Side note: day trading courses only get popular when the overall market is doing well anyway. What a coincidence!)
A well-diversified portfolio with a long-term perspective is one of the best ways to invest.
One strategy that helps investors stay the course is dollar-cost averaging. Instead of trying to time the market, you invest a fixed amount of money on a regular schedule whether prices are up or down. When prices are high, your money buys fewer shares. When prices are low, your money buys more shares. Over time, this smooths out the ups and downs and helps you avoid emotional decision-making.
It forces you to buy low when things look bad and avoid overpaying when everyone else is excited. In other words, it keeps your emotions out of the way and keeps you on track.
No chasing the hottest stock. No panicking when things dip. Just disciplined, steady investing.
It won’t guarantee success, but with the right approach and the right guidance, you’ll put yourself in the best position to succeed.
