One thing I do that transforms my investment/trading journey 📒

My Investing Journal helps me to understand myself better through a process of self-discovery/self-diagnosis that my investment returns improve significantly thereon.

Photo by Jan Kahánek on Unsplash

I have been investing in trading stocks for many years. I do not track my performance closely partly because the results had been mediocre. I relied on the stockbrokers’ platforms to track my returns and I compiled the returns of various platforms once a year.

You cannot improve something until you measure it. I decided to track my stock investments using Google Sheets. I update each transaction details with reasons to buy and sell. Google Sheets can update the stock prices automatically from most stock exchanges. Every week, I would tabulate unrealized and total returns to date and the change in returns on a weekly and year-to-date basis. I can pivot the data in many ways for analysis and review.

I get to know myself better. Little did I expect a tracking mechanism has evolved to become a very important process of self-discovery/self-diagnosis that greatly improves my investment returns.

Knowing others is intelligence; knowing yourself is true wisdom. Mastering others is strength; mastering yourself is true power. — Lao-Tzu

Below are my key learnings.

1. Get serious and be accountable: Investing as a business than a hobby

Investments/trading has always been my interest and hobby. A hobby is for pleasure and to lose money on investments (albeit an excuse) is acceptable because we are meant to spend (lose) money on hobbies; earning money is a bonus. This was my mentality previously especially when I lost money.

My investing results had been mediocre so I resolved to get serious and manage it like a business venture.

Tracking the investment portfolio is analogous to running it as a business with periodic financial statements and performance metrics trackers. It signifies seriousness with a committed intent as well as determination to make investments as a credible source of income. Hence, this represents a major mindset shift as I transition it from a hobby to a serious business.

2. Learn about myself

We study and learn about investing and trading as we hone the craft. However, learning about ourselves to improve our craft is equally important. The Journal provides valuable data for what I bought and sold and why, the price, and the value; these data allow me to analyze my transactions.
– What have I done well?
– What have I done poorly?
– What are my bad habits and biases that hinder my performance?
– How can I improve my decision quality further?

Keep a trading diary — write down your reasons for entering and exiting every trade. Look for repetitive patterns of success and failure. — Alexander Elder

The Journal has been a tremendous help to develop my investing and trading strategies. It helps me to understand myself, track my consistency and hone strategies that are suitable to my lifestyle, circumstances, financial position and comfort level.

You can read details on investing/trading strategy here: Everyone needs to have an investing strategy to succeed.

Some of the significant changes I made in my investing:

A. Hold good stocks over a longer period – time in the market matters more than timing the market

I observe that I make more profits holding the same great stocks over a longer period instead of doing swing trades over weeks and months. It is difficult to time the market and trade these stocks to make the same amount of profits. It is time-consuming too. Just let the winners run, and cut the losers fast.

Compound interest is the eighth wonder of the world. — Albert Einstein

B. Witness firsthand how compounding works with my stock holding. I become more convinced to hold my high-quality companies over a longer period and add during pullbacks.

Time is your friend, impulse is your enemy. Take advantage of compound interest and don’t be captivated by the siren song of the market. — Warren Buffett

C. Understand the meaning and importance of “portfolio management” as my stocks go up and down and I diversify to different companies, markets, industries, and assets.

D. Investing/trading strategy is personal. I know my comfort zone; how much volatility I can accept. Everyone invests/trades differently.

E. Show signs of my greed and fear which caused lots of wrecks.

I discovered that my greed and fear have been major causes of losses. I begin to invest using my fear and greed as an indicator; see below for elaboration.

F. Made category decisions to avoid stocks outside my circle of competence.

G. Develop a good checklist to combat biased narratives and provide a framework within which to process information for decision-making. Whenever I stray from my rules of evaluating stocks and justifying hard for stocks to buy, there is a high tendency that I may lose money from these purchases. It is a sign of greed to earn more but often, it ends up with greater losses.

The Journal provides good feedback through analyzing the data and information gathered that have helped to improve my investing/trading performance.

3. Continuous tracking = conscious knowing

Every weekend, as Google Sheets update the stock prices, I will consciously know the realized and unrealized profits or losses and total capital deployed. It is a deliberate approach towards knowing the status of the portfolio and deliberate on whether to hold, sell, or add. It helps me to face the reality, especially with losses.

4. Lose less by detecting signs of greed and fear

Over time, through the spreadsheet, I can see how recurring patterns of greed and fear wreck my overall returns. Reducing and avoiding losses improve my profitability significantly.

  • When there is a FOMO (Fear Of Missing Out), I may become greedy and chase after stocks. Often, losses resulted. Greed generally causes my decision quality to deteriorate.
  • As losses build-up, fear creeps up. It may affect my emotions. I may not want to look at the Google Sheets; I would choose to ignore the reality. This is where I need to come to terms and re-examine calmly whether the initial investment thesis is correct and that my conviction is not misplaced. Whether to add, trim, and sell becomes important. When the stock prices are low due to a pullback or crisis, it is not a time not to be frozen in fear and waste the opportunity to consider adding.

Tracking during periods of fear is toughest — during pullback, crashes, and with mounting losses. When the going gets tough, the tough get going. This is where a contrarian mindset is most needed to decide whether to cut losses, switch and/or add positions to take advantage of the lower stock prices.

5. Do what is comfortable and avoid what is uncomfortable

By tracking my investment portfolio, I become more aware of greed and fear and how they make me comfortable/ uncomfortable, anxious, and affect work and other aspects of life. I become more aware of my objective is to make money from stock investments; it is not meant to be a source of excitement or unnecessary anxiety.

Conclusion: Track to improve

As I take responsible (not to blame the markets), be more consistent (being more aware of what I do well and my mistakes), and continuously improve, it shows the compounding effects over time — my returns improve and compound.

Consistency + Continuous improvement + Time = Compounding returns

Hence, the compounding of financial returns does not happen by chance or simply, just buy and hold. It requires honing one’s skills and to do it well, tracking is of utmost importance.