This is also called tolerance or willingness to take risks. How do you know your tolerance? A common option is to take a test or fill out a questionnaire. It is bad because you can think one thing about yourself, but in practice your reaction will be completely different. Therefore, in my opinion, the best way is to practice yourself and check yourself, not forgetting about rule number 2. That is, do not rush to increase the size of the invested capital until you “feel” for some time your reaction to the negative dynamics of the portfolio or individual securities. It will take some time.
Expand your horizons and knowledge about the world.
Perhaps one of the most difficult points. If you have never been interested in anything other than the required minimum for work and life, then it will be difficult for you to invest. Rather, it will take you a long time to delve into the trends of modern business and the world as a whole, to grasp the relationship between events and their impact on economic agents. And it will be difficult to form your own idea of what is happening (rule number 1).
Now I’m not talking about economic or financial models (I myself have never used them in practice), but about much simpler things. Well, for example, my favorite story with Intel. You are using a computer that has an Intel processor and you know they are a good company. And here’s the news: the delay in the 7nm process technology, everyone says that this is bad and Intel loses in the competition with AMD. But you don’t know what a “process technology” is. Let’s say you read what it is, but you are not aware that at the moment the difference between 7nm and 10nm is not critical in terms of performance. And you draw a conclusion based on someone else’s opinion that it is necessary to stay away from Intel. And you can also find out that Intel is actively developing the direction of cloud computing and is already receiving revenue from it. But you do not know what “cloud computing” is, why they are needed and what is the perspective of this direction – for you it is an empty phrase. As a result – the inability to make an informed decision on your own.
Or a simpler example: you just don’t understand what business is. It seems to you that this is just a company that sells a product or services. And the better the product or service, the better the company earns. You think so because you are not a leader at your job and have never once wondered what goals the company and its management are facing. What tasks need to be performed in order to achieve these goals. You have not read a single book about this, you have not watched a single lecture. You may not be aware that in business, details can decide: the quality of the specialists who work there and the attitude towards them, attitude towards customers, cost optimization, constant work on small improvements, corporate governance, ethics, and much more. You can make a conclusion about some companies without even looking at their reports, simply by the way they do business (we’ll talk about this in rule # 7). Bottom line: you invest in ineffective companies with dubious prospects with a clear conscience.
Develop critical and systemic thinking and information skills.
Critical thinking is the ability to question any incoming information. It is also an understanding that any information not supported by facts is just a shake of air. This is the ability to verify data in original or reliable sources, or with your own hand. This is a skill that helps to get closer to the truth in the event of conflicting information. It is a filter that helps you separate valuable information from background noise and fakes.
How to develop critical thinking? Yes, especially in any way. Just try to think with your head, not take everything you say, check and double-check the data. Remember that any information coming to you is beneficial for someone. But for whom and what? And does it benefit you?
Systems thinking. In general, this is a whole separate science, but we will not talk about the complex. To make it easier to understand what it is, you can think of “non-systemic thinking”. This is when conclusions are made without structure, judgments contradict each other, decisions are made chaotically, in general, a mess in the head. In turn, systems thinking is the opposite of all this. If we try to describe systems thinking in a nutshell, then I would say that this is a way to think holistically, and it is based on understanding the relationships between the elements of the system.
I don’t know how correct this is. I do not consider myself an expert in systems thinking, but it seems to me that the most obvious example of such thinking is a formula. The usual formula with which you can calculate something. Without a formula, we can know special cases among some data, and with a formula, we can make a calculation ourselves for any such special case, based on the given conditions.
Let’s say there is a large supermarket in a residential area and someone somehow found out that its annual profit is 150 million rubles. To the layman, this seems like a large amount and he concludes that this is a good business. At the same time, there is a store near the house, which is owned by his neighbor, with an annual profit of 1