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Holding to a solid framework
The world of investing can be extremely hazardous.
Balancing risks with potential rewards defines, in part, what skilled investing is all about.
As such, developing a systematic approach is essential for avoiding steep losses and maintaining soundness of mind and purpose amidst the noise of markets.
Over time, and often through trial and error, an investor should develop a system of thinking—essentially a framework—that allows them to sort information, and focus attention in the right areas.
If one is often swayed by external enticements, or wrestles with his own internal psyche, such a framework effectively acts like an armor with which an investor can protect himself in battle—and prevail.
To be fair, there are several methods which investors can use to approach markets and no single method will work equally well for everyone.
For example, some may be inclined to methods that facilitate the adrenaline rush of trading, while others may be inclined to a pace that is slower and more analytical.
Ultimately what matters is that an individuals’ investment method is fitted to his personality.
Warren Buffett for example, tactfully developed analytical approaches consistent with his mental disposition as being extremely patient and steadfast.
Shareholders of his holding company Berkshire Hathaway have accrued the benefits of his proclivity to keep his emotions in check as a result.
Another famed investor, George Soros, with his philosophical orientation, relies mostly on insights gleaned from interactions between economic stresses and mass psychology to develop his own framework for investing (formally referred to as his theory of reflexivity)
Financial markets can be such complex mechanisms that they provide no shortage of knots for investors to untangle.
Successful investors are usually the ones who, for want of a better term, don’t “beat themselves”
Put differently, they are the ones who define and solve investing problems in ways that are consistent with their own temperaments and the analytical skills they bring to the task.
When called upon, a solid, well-defined framework for decision making makes all the difference.
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