As many who venture into markets know, some of the best investors don’t just study markets — they study their own minds. In investing, there’s nothing worse than losing money on trades or investments that you begin to regret. Why did I do that? What just happened? Those emotions lead me to creating this post: mental tricks to help investors avoid bad decsisions.
Here they are:
The Pre-Mortem Tip
Before you buy, pretend the investment has already failed. Then ask: Why did it go wrong?
This forces critical thinking and protects you from falling in love with your own thesis. More importantly, it forces you to think about a future where everything goes wrong and then evaluate how likely that is to happen BEFORE pressing the buy or sell button.
“The biggest investing errors come not from factors that are informational or analytical, but from those that are psychological.” — Howard Marks
Second-Level Thinking
From Howard Marks: it’s not just about what will happen — but what’s already priced in. The real edge comes from thinking differently, not just being right, or knowing what the market already knows.
One very important aspect of this: what do you know that the market does not? The answer is the market knows a lot. So you must consider every aspect that is priced in.
“You can’t do the same things others do and expect to outperform.” — Howard Marks
No Decisions While Emotional or Volatile
Avoid buying or selling when you’re angry, euphoric, scared, or revenge trading. Simple rules help:
• Wait 24 hours before any major move
• No trading right after big losses
Oh, and lastly, wait three days after any big move.
“The stock market is a device for transferring money from the impatient to the patient.” — Warren Buffett
Have an Exit Plan Before The Trade Begins, NOT After
Before entering a position, know exactly what would make you exit:
• Target price hit
• Thesis breaks
• A better opportunity shows up
This gives clarity when the market gets noisy. Your plan is already set. You know your take profit and you know your gain.
“I believe the very best money is made at the market turns. Everyone says you can’t time the market. I believe you can. But you need patience, discipline, and a good exit plan.” — Paul Tudor Jones
Stay calm. Stay curious. Stay studied.
I hope these little tips were helpful!