The 7 Qualities of a Disciplined Investor

Aug 27, 2020
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When it comes to investing, learning what you’re supposed to do is relatively easy. But doing what you’re supposed to do, well, that’s surprisingly hard. We can be our own worst enemies, especially when the market becomes unusually volatile, as it has this year.

The one quality that separates the top professionals from the rest of us can take years to develop: emotional self-control. Our emotions interact with news and market events in ways that incline us to act at precisely the wrong time. We all want to “buy low and sell high,” but emotionally, it’s quite difficult to do either. Experience shows that most investors do the opposite.

For example, few investors are willing to “sell high,” even after an extended bull-market run when the caution signs of high valuations are all around. Man’s natural greed tends to kick in and investors want to make even more.

Nor is it easy to “buy low.” The reason that prices drop is that the economy is weak, the news is bad, and people are pessimistic or uncertain. Investors feel pressured. And under pressure, emotions tend to dictate our actions. As uncertainties increase, so do our anxieties. Rather than buy, we tend to wait for information that is more positive, but it never seems positive enough. We become paralyzed. Why? Emotions.

As you know, SMI’s does not recommend that you attempt to buy and sell at market lows and highs. The mechanical process built in to Dynamic Asset Allocation and Fund Upgrading 2.0 will tell you if and when to make portfolio changes.

Still, even following a rules-based strategy requires self-discipline if we are to overcome our emotions and trust the system. Here are a few suggestions for how to grow in that area:

  • Be Humble
    Accept that “there’s nothing new under the sun” (Ecc. 1:9), and that the instructions God has given us in His Word have proven to be practical and effective. There’s safety in following the priorities and guidelines He has provided for our protection. Abandoning them can only mean we have more confidence in our own thinking than in His.

  • Be Conscientious
    You must see yourself as a caretaker of what God has given you. Acknowledge that taking undue risks jeopardizes His wealth. You’re not just in this for yourself, but to responsibly increase your assets so you can provide for your family and give more generously. You want to play your part in taking the gospel of Christ to the millions who have never heard.

  • Be Prepared
    Develop a written plan that lays out your investment strategy, one that reflects your personal goals and an appropriate level of risk. Understand how all the parts of your portfolio fit together and the role that each part plays. Then let your buying and selling be dictated solely by your plan. You’re to be an initiator, not a responder to ever-shifting market news.

  • Be Content
    A preoccupation with large profits can be dangerous (1 Tim. 6:9-10), so as you draw up your plan, be reasonable in your financial ambitions. Surely, more money is lost due to greed than any other single factor. Accept the fact that annual gains of 8%-10% over time are most likely.

  • Be Diversified
    Make sure your plan divides “your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth” (Ecc. 11:2). To be sure, higher profits can be made by concentrating your money in one or two opportunities, but staggering losses can be incurred as well. By avoiding the temptation to concentrate your holdings, no loss will devastate you.

  • Be Patient
    Taking your cue from the Parable of the Talents (where the master was away for “a long time”), make your strategy a long-term one that aspires to build wealth slowly. This will allow you to take up-and-down market cycles in stride. Time is the enemy of the speculator, but the friend of the investor.

  • Be Accountable
    Show your plan to your spouse or a trusted Christian friend, and review it with them quarterly to show how you are being faithful in following it. Any thoughts of taking steps outside your strategy will be tempered by your realization that you will have to give an accounting.

Taking these steps will help assure that you are honoring the Lord and His priorities as you strike a wise balance between the risks and rewards of the marketplace. Then, while occasional bear markets and economic storms may threaten, you can be of good cheer, for the Lord has said: “I will instruct you and teach you in the way you should go; I will counsel you and watch over you.... The LORD’s unfailing love surrounds the man who trusts in Him” (Psalm 32:8,10).

Written by

Austin Pryor

Austin Pryor

Austin Pryor has 40 years of experience advising investors and is the founder of the Sound Mind Investing newsletter and website. He's the author of The Sound Mind Investing Handbook which enjoys the endorsements of respected Christian teachers with more than 100,000 copies sold. Austin lives in Louisville, Kentucky, with his wife Susie. They have three grown sons and many grandchildren.

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