Two things the World Cup can teach you about investing

From Jason Bodner, Editor, Palm Beach Trader:

Last week, my phone had a temper tantrum. It just wouldn’t work and was so slow that I couldn’t take it. I took it to the phone store to see my upgrade options.

I brought my three sons. While I waited to get a new phone, they watched the World Cup game in the store.

I wasn’t paying attention, but my seven-year-old Liam proudly proclaimed that Belgium was playing Japan.

This was big deal. (And in a moment, I’ll tell you how it all relates to investing.)

You see, my wife was born and raised in a small city in Belgium. My kids all have dual citizenship. I’m the only one in the family who has just a U.S. passport.

When we left the store, the score was 0-0 at halftime. We were still confident our team would win. There was talk of how Belgium could go all the way. We seemed a sure bet against Japan. (Belgium lost to France in the semifinals on Tuesday.)

About 20 minutes later in the car, I asked Sacha, my middle son, to tell me the score…

Belgium was down by two goals and still hadn’t scored. It was quickly turning into one of the biggest upsets in World Cup history.

Sacha was bummed, but being an optimist said, “You never know… We can come back. It’s not over yet!”

I saw his face was mixed with disappointment and hope. I replied with a weak moment of adult realism: “I don’t know Sach, it seems doubtful. Sorry dude.”

I felt bad the way a dad does when he’s gotta break bleak reality to his kid.

Five minutes later, he said “Oh yeah, Daddy? Look now!” I nearly crashed the car when I saw on his phone that the score was now 2-2. I was screaming with glee with the windows open. It must have looked strange to anyone standing on the street.

When I got home, we ran into the house to watch the final minutes of the game. Belgium scored an injury-time goal to win 3-2.

My sons and I started jumping around. Belgium turned what would have been the biggest upset in the World Cup into the biggest comeback.

Aside from being a fantastic game, there is a point to this story…

You see, I was ready to throw in the towel on Belgium. Psychologically, I had given up.

There was plenty of time for a comeback – improbable as it was. But my mind had written off that possibility and given in to despair.

Sure enough, I was dead wrong. And that’s the point…

Emotion is the true enemy of investors. It can lead to despair and fear. And that can cause you to make drastically wrong decisions.

If Belgium were a stock, emotion would have told me, “I can’t take it anymore!”

I would have sold at the exact bottom.

It took me a long time to learn how to overcome emotion as an investor. Ultimately, the most important thing I had to master was my own mind.

Like most people, I have a knack for doing the wrong thing at the worst moment when I act based on emotion. That’s why I built a stock investing system to take guesswork and emotion out of it.

Your stock positions will move up and down, day-to-day, and week-to-week. The market itself will get bumpy from time to time. We all know this… Yet we still act on our feelings when it happens.

The key to overcoming emotion is to stay rational – especially when things get bumpy.

There are two ways I do this:

  • Stay patient. I need to remind myself that investing in stocks is a long-term game. I need to stick to my system and not sell out of fear.
  • Stay focused. When I feel overwhelmed by emotion, I find it helpful to take a walk or do something to focus my attention on something other than what’s bothering me. For me, listening to music or walking my dogs calms me down and helps me refocus.

Emotions cause us to react. Logic dictates that we stay disciplined. Patience and focus will get us to where we want to be.

Talk soon,

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Jason

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