We are what we repeatedly do. Excellence, then, comes not from our actions but from our habits.
It's relatively easy to prescribe an investment plan that is likely to work well if it's followed diligently. Much of this book is devoted to doing just that. The hard part is keeping yourself from derailing your own plans. One of the biggest mistakes investors make is underestimating the power of their emotions. If you take the time to understand the psychology of successful investing, you'll make your life more pleasant and you'll probably have more money to spend in retirement and leave to your heirs. But if you ignore this topic, I promise you will pay for doing so.
Many investors get in and out of the stock market from time to time depending on whether they think prices are relatively high or relatively low. Some have mechanical timing systems to guide them, but many people believe they can successfully make their own decisions about when to get in and when to get out. In hindsight, the majority of such moves are counterproductive.
When stock prices are relatively high, financial risk is also high and the opportunity for gains relatively low. Yet high prices, ironically, mean low emotional risk for investors. People find it easy to buy investments that have been going up. Conversely, when stock prices are relatively low, financial risk is also low; the opportunity for gains is high. But low prices mean high emotional risk. ...