Self-Discipline: The Key to Superior Investment Results

Anyone who has ever invested some money in the stock market know that the market is very difficult - if not impossible - to predict. In fact, even those who've never participated in the market know this one basic fact. Still, the question remains: what makes the markets move in such an irrational manner?

What makes the stock market irrational is also what makes human beings irrational: emotions. Remember, the stock market is essentially a gigantic auction arena. For every buyer, there is a seller; for every seller, there is a buyer. Different people have differing judgment when it comes to the value of their stock market holdings. Thus you will find that in any given day, there will be people feverishly buying up a certain stock and other people desperately trying to sell it.

How can the same stock be appraised so differently? There are two main emotions at work here: fear and greed. Those who are selling off their shares are afraid that the stock price will fall in the near future; they think it better to take some of the profits now while they are still ahead. On the other hand, those who are buying up stocks are of the opinion that the shares will increase in value in the near future - in other words, they are motivated by greed. While both emotions are useful to investors, they must be moderated and controlled if one is to attain good investment results.

Why Self-Discipline is Important

Being self-disciplined is important if you are to insulate yourself from the rumblings of the stock market. It is financially dangerous to get caught up in the mood swings of the market. Stocks prices change on a daily basis, sometimes drastically so. If you can't handle the volatility, consider investing in something with less risk, such as bonds. Note, however, that stocks grow faster than bonds. If you can tolerate a little risk, you can reap high rewards by investing in stocks instead.

The famed investor Warren Buffett has often observed that superior results in the stock market are not attained through superior intelligence, but through superior discipline. This is because there are hundreds of thousands of people just as smart as you trying to make money in the stock market, and in the end, the efforts of such investors cancel each other out. If you are able to control both your thoughts and emotions and direct them appropriately, you have a decided edge in the stock market game.