I am on a much needed vacation with my family cruising the Mediterranean. During this time I thought it would be good to cover a topic I consider to be most important when it comes to money management – Discipline. In a  10 part series which I commenced yesterday [1], I am going to cover the key points to building a discipline trading/investing strategy for managing your money. Let’s start with what qualifies me to talk about this topic. I have been trading and investing money for myself since I was 18 years old which brings my total to 30 years.  I also have managed hundreds of millions of dollars professionally as an investment advisor for the last 25 years. These experiences have taught me one thing – discipline wins. Without discipline in your money management strategy you invite problems, and more times than not, I see people lose money.

So, let’s start with the concept of discipline. I have the definition of this word on my desk to remind me at all times how to practice this in trading. “Training to ensure proper behavior: the practice of methods of teaching and enforcing acceptable patterns of behavior.” The key here is training. In other words it takes training to become a good trader/investor. Too often I see individuals decide they are going to manage their money and forget the first rule, to be successful takes training. I will be the first to admit that investing, when kept simple, is easy for most people to learn. But, it still takes learning and training. Therefore, I will tell you if you have not properly educated yourself and practiced what you have learned, be careful. When I went to college I received a degree in mathematics and education. Armed with my degrees I set out to teach high school algebra. What I learned in the first 30 days of teaching algebra is that  knowing it and teaching it are two entirely different things. In fact, it wasn’t until half way through the school year and many frustrating days of trying, that I finally asked for help. The head of the math department at the high school spent time showing me how to teach and communicate at the student level. By the end of the school year I had learn the art of teaching. I spent the next 8 years perfecting the art. My point to you is to first take the time to learn , but then you must learn to implement (practice) what you have learned effectively.

As an investor you will have to practice the methods your were taught and learn acceptable patterns of behavior that fit your personality of investing. No two investors are the same. Why? No two individuals are the same. Even identical twins act and respond differently. In other words, the psychology of investing is impacted by you as an individual based on how you think, believe and act on stimulus. The market you are investing in is the stimulus and the actions of all traders combined create the daily results. We all see the market differently, and we will all invest based on that vision differently. In fact, for a transaction to occur in the stock market there must be a buyer and a seller. The transaction process alone creates two different views. What matters the most is that you understand your views and the actions they prompt and then implement them with discipline based on training. This is what makes good investors long term. My grandfather told me as a child, “even a blind pig can find food”. It takes discipline, training and practice to become good or to be an expert at anything. So, as we start this journey to become a discipline trader take inventory of what you know and what strategy you use (discipline) to implement the process of trading. Tomorrow we will discuss the importance of knowing what you want.

This is part 2 of a daily educational series Jim will provide for the next few weeks, exclusively here on Greenfaucet.  Click here to read part 1 [2]