I can remember the feelings of panic and helplessness in the huge slide of 2000 - 2002 when I did not have any strategy beyond what might be charitably called a vague intent to ''buy low - sell high'' (which turned out as often as not to be the reverse). Truth be told, vestiges of the random bargain-hunting thought process have manifested themselves lately when reading the prices of the banks like the Royal Bank and the Bank of Nova Scotia, which look cheap and are tempting to buy. But I am suppressing those successfully (so far, at least!) with reminders to myself that they don't fit into the plan.
Authors like Benjamin Graham, Richard Deaves, Richard Ferri and others caution that an investor's own erratic and emotion-driven behaviour is the investor's worst enemy. I am finding that having a clear and specific investment plan is helping me avoid doing anything rash like panic selling and is helping me feel calmer and in control. (Of course it always possible that we are in a financial Titanic having hit a seemingly innocuous debt iceberg, but I will at least look dignified going down with the ship.)
In short, here are the investing principles I am now trying to follow:
- create a specific plan, i.e. one with numbers; writing it down also helps
- make sure the plan is reasonable, e.g. explain it to your wife/husband, father, mother, uncle, best friend, co-worker, financial advisor and see if they are nodding in agreement and understanding or have puzzled and disbelieving looks on their faces afterwards
- follow it; if necessary, enlist someone's moral support; if the plan doesn't seem right, go back to the first two steps