Alexander Voigt wrote this article from daytradingz.com
What distinguishes people who are successful in the stock market from those who are not?
It’s just four letters – M.T.P.L. As André Kostolany once said, there are the hard-boiled ones and those who tremble. “Hard-boiled” characters don’t respond to every message concerning the financial market, because they have a strategy. They are the long-term winners on the stock market. The tremblers pay the profits of the hard-boiled guys because they sell and buy at the wrong time. So you want to be a hard guy. How does it work?
How M.T.P.L. can help you become a better investor
(Money. Thoughts. Patience. Luck.)
Whether you have money or not, by Kostolany’s definition, depends not on the amount of your net worth, but solely on whether or not you are in debt. Someone who owns $1 million in stock but has $2 million in debt has no money, according to Kostolany. Those who have no money can (and should) not buy shares.
The tulip crisis has shown what happens when you take out debts to speculate with the money: If you speculate with borrowed money, you can’t stay calm in downturns, because the borrowed money makes no gains but diminishes short term and, thus, you fear to be unable to repay the debts. The consequence is panic sales. That’s for the “tremblers.” You realize the loss, and now you have to worry about how to get the money to repay the debt. Note: Buying stocks on credit is not a good idea!
Also, you have to invest some serious thinking in a strategy: What is your goal in the whole thing? Retirement, or a condominium? Investing actively or passively? With which risk distribution? And in which stocks or ETFs do you want to invest? Choosing the right personal strategy depends on your beliefs. Do you think that the tech industry will dominate the future?
Do you believe that Apple will dominate the market? Or Facebook? Or both, for their respective areas? Do you think that our economy will grow steadily on average? Think about it, develop your strategy, and then stick to it. Use modern tools like stock screeners to filter and visualize. No matter what friends, acquaintances, and the media say, stick to your plan. Being unfaithful to your strategy is expensive and means that you have not thought it through enough.
“Patience is perhaps the most important thing about the stock market and the lack of it is the most common mistake. If you have no patience, do not even go near the stock exchange.” – Kostolany
Most stockbrokers panic when prices fall, selling everything in a flurry. They lack patience and nerves to endure the downturns. In the short term, a share price follows the so-called Random Walk: the principle of chance.
These ups and downs should be bridged patiently. Because in the long run, the prices settle around their average, and the trend points upwards. There can always be setbacks in the short term, and depending on whether you start investing at the beginning of an upswing or downswing phase, the initial earnings trend can be disappointing. But in the long term, it has been confirmed time and time again that markets are rising.
Of course, one also needs some luck to succeed in the stock market and make good profits. Every investor needs a pinch of luck, because political events, wars, and natural disasters, but also corruption, fraud or new inventions that influence the course of stock market prices, can hardly be considered when planning the strategy.
With luck, things will start as planned, and your account will never be in the red despite a setback. If you do not start at the beginning of an economic downturn or your strategy dissolves, then you should take countermeasures. However, if you diversify well in a security-oriented manner, for example investing in ETFs like MSCI World and MSCI Emerging Markets, the element of luck is immaterial, because you have diversified so well that unforeseen events will affect you only very slightly.
Ultimately, a bit of everything is necessary for success:
- If you have no money or are indebted, you can‘t be patient, and you‘ll be forced to sell in times of crisis (and these times will come) to your disadvantage.
- If you do not think it through, you lack a strategy. You will buy at high prices and sell at low prices.
- If you have no patience, money (1) and thoughts (2) are of no use to you. You will sell at the slightest disruption instead of waiting for the next upswing.
- If you do not have the necessary pinch of luck for perfect timing, you‘ll probably lose patience, get out of the markets and regret your impatience ten years later.
History repeats itself, and the long term success belongs to those who are patient, with sufficient capital, positive thoughts, and the happy knack for auspicious beginnings.