Successful Investor’s Psychological Mindset

“Doing well with money isn’t necessarily about what you know. It’s about how you behave. And behavior is hard to teach, even to really smart people.” ~ Morgan Housel, The Psychology of Money

Individuals must understand that there is a psychological mindset that the successful investor tends to have.

The successful investor will focus on probabilities, intrinsic values and safety of margin while letting decisions be ruled by rational, as opposed to emotional, thinking.

Investors’ emotions are their worst enemy.

The psychology of money is the study of our behavior with money. Billionaire investor Warren Buffett contends that the key to overcoming emotions is being able to retain your belief in the fundamentals of the business, and not get too concerned about the stock market price.

Investors should realize that there is a certain psychological mindset that they should have if they want to be successful, and try to implement that mindset. Dave Ramsey has said that building wealth is “20% head knowledge and 80% behavior.”

Value investing mindset

Value investing derives the intrinsic value of a common stock independent of its market price. By using a company’s factors such as its free cash flow, earnings, return on invested capital, and dividend payouts, the intrinsic value of a stock can be found and compared to its market value. If the intrinsic value is more than the current price, the investor should buy and hold until a mean reversion occurs.

Mean reversion is the theory that over time, the market price and intrinsic price will converge towards each other until the stock price reflects its true value. By buying an undervalued stock, the investor is, in effect, paying less for it and should sell when the price is trading at its intrinsic worth. This effect of price convergence is only bound to happen in an efficient market.

The fundamental principle of value investments lies in the ability of the markets to eventually correct to their intrinsic values. Common stocks are not going to remain inflated or bottomed-out forever despite the emotions and irrationality of investors in the market.


References:

  1. https://www.investopedia.com/terms/b/bengraham.asp
  2. Morgan Housel, The Psychology of Money. Harriman House, Great Britain, September 8, 2020.
  3. https://www.amazon.com/gp/product/0857197681/ref=as_li_tl_nodl?

Contrarian Investing

“The way to make money is to buy when blood is running in the streets.” ~ John D. Rockefeller

Contrarian investing believes that the worse things seem in the market, the better the investing opportunities are for profit.

Contrarians, as the name implies, try to do the opposite of the crowd. They get excited when an otherwise good company has a sharp but undeserved drop in share price. They swim against the current and assume the market is usually wrong at both its extreme lows and highs. The more prices swing, the more misguided they believe the rest of the market to be. (For more on this, read “Finding Profit In Troubled Stocks.”)

Bad Times Make for Good Buys

Contrarian investors have historically made their best investments during times of market turmoil. In the crash of 1987, the Dow dropped 22% in one day in the U.S. In the 1973-’74 bear market, the market lost 45% in about 22 months. The terrorist attacks of Sept. 11, 2001, also resulted in a major market drop. Those are times when contrarians found their best investments.

The 1973-’74 bear market gave Warren Buffett the opportunity to purchase a stake in the Washington Post Co. at a deep discount (the company could have “sold the [Post’s] assets for not less than $400 million.” Meanwhile, the Post had an $80 million market cap), an investment that has subsequently increased by more than 100 times the purchase price–that’s before dividends are included.

Sir John Templeton, founder of the Templeton Growth Fund, was also a serious contrarian investor, buying into countries and companies when, according to his principle, they hit the “point of maximum pessimism.”

As an example of this strategy, Templeton bought shares of every public European company at the outset of World War II in 1939, including many that were in bankruptcy. He did this with borrowed money. After four years, he sold the shares for a very large profit.

But there are risks to contrarian investing. While successful contrarian investors put big money on the line, swam against the current of common opinion and came out on top, they also did some serious research to ensure the investing herd was indeed wrong.

So, when a stock takes a nosedive, this doesn’t prompt a contrarian investor to put in an immediate buy order, but to find out what has driven the stock down and whether the drop in price is justified.

While successful contrarian investors have their own strategy for valuing potential investments, they all have the one strategy in common–they let the market bring the deals to them, rather than chasing after them.


References:

  1. https://www.forbes.com/2009/02/23/contrarian-markets-boeing-personal-finance_investopedia.html

Faith

“Faith is the first factor in a life devoted to service. Without it, nothing is possible. With it, nothing is impossible.” ~ Mary McLeod Bethune.

Faith is the substance or assurance of things we hope for, but have not yet received. Faith (confidence, belief, trust) is also our evidence of that which is not seen—the invisible spiritual things.

Faith comes before a prayer is answered or before an individual has received what he or she has requested from God. If we have received what we asked for, then faith is not needed.

An example of faith was demonstrated by educator Mary McLeod Bethune who was quoted as saying: “I considered cash money as the smallest part of my resources [for starting the school for Negro girls]. I had faith in a loving God, faith in myself, and a desire to serve.”

“Now faith is the substance of things hoped for, the evidence of things not seen.” ~ Hebrews 11:1,

Keys to Building Wealth

The wise man saves for future days,
Delaying pleasure in frugal ways,
Building wealth with each coin saved,
A future secure, a life well paved.

Achieving financial freedom and building wealth require a combination of the right mindset, focus, self-discipline, patience, gratitude and knowledge. “The freedom to do what you want, when you want, with whom you want, for as long as yo want, is true freedom,” says Morgan Housel, in The Psychology Of Money.

The six keys to building wealth over the long term are mindset, focus, discipline, patience, knowledge and gratitude. A seventh key is health.

It’s effectively about your mindset. Wealth is achieved by habitually investing in yourself first and foremost. Winning at finance and at life is 80 to 90 percent habit/behavior and 10 to 20 percent knowledge/skill. Knowing what to do isn’t the problem; actually doing it is. Most of us know what to do, but we just don’t or won’t do it. If you can control the person in the mirror, you can be fit and wealthy.

Once you adopt the mindset of the individual you aspire to become, there are no limits to what you can achieve.

Once you realize that everything in this life is but a thought, mindset and resulting habits, you are guaranteed to alter your life’s trajectory. “Doing well with money has a little to do with how smart you are and a lot to do with how you behave,” explains Morgan Housel, in The Psychology of Money

Be disciplined enough to delay instant gratification while building wealth. “Rich is the current income. Wealth is income not spent. Wealth is hard because it requires self-control,” concludes Morgan Housel, in The Psychology of Money. The truth is that wealth is what you don’t see. Wealth is the nice cars not purchased. The diamonds not bought.

Careless spending and a conspicuous consumption lifestyle make you a slave to capitalism, while saving and investing in assets builds wealth. “Spending money to show people how much money you have is the fastest way to have less money,” writes Morgan Housel, in The Psychology of Money.

Building wealth requires a long-term perspective and a willingness to make sacrifices in the present for future benefits.

Final key point, getting healthier should be equally as important as building wealth. It is stated repeatedly and for a very good reason that “health is wealth”.


References:

  1. Morgan Housel, The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness, September 2020.
  2. https://www.sloww.co/psychology-of-money-book/

Inflation: Everyone Experiences It Differently

Inflation and rising prices erode your purchasing power.

The national inflation rate ended 2022 at 6.5%, after peaking at 9.1% in June—a rate not seen in more than 40 years. The inflation rate had averaged 4% from 1972-2022, according to the US Bureau of Labor Statistics.

No one can be sure how long inflation will stay elevated above historical averages but it could stick around longer than anyone would like. Regardless, not everyone experiences inflation in the same way. You may find your expenses rising faster than your friend in another part of the country or more slowly than your next-door neighbor.

Since everyone experiences inflation differently. Fidelity’s analysts parsed mountains of government data on inflation rates and spending patterns.

Fidelity identified 4 key factors that can make inflation different for everyone.

  • Where you live: Inflation varies widely by region. The northeast tends to have lower inflation than the national average, while the southeast and mountain west tend to be higher.
  • How old you are: People spend money on different things at different stages of their lives. We used data from the US Bureau of Labor Statistics to inform how people in various age groups tend to spend their money.
  • Do you rent or own? If you’re renting you aren’t insulated from price increases as much as you are if you own, and especially if you’ve paid off your mortgage.
  • How much do you drive? The price of gas was a huge driver of inflation in the past year.

Answer these 4 questions and get an estimated inflation rate that may better reflect the impact of rising prices on people like you than the national headline inflation rate. Knowing where you stand can help you plan.

With the price of food and energy rising fast, inflation is already hitting most Americans right in the budget. A recent analysis from Moody’s Analytics found that the average household is spending almost $460 more per month because of inflation. As you look for ways to tighten your belt, keep an eye on your budget. Fidelity suggests spending no more than 50% of your take-home pay on essential expenses like food and housing, to give you room to save for retirement, plan for short-term goals, and spend on nonessentials.


References:

  1. https://www.fidelity.com/learning-center/trading-investing/inflation-quiz
  2. Moody’s Analytics, “Fed isn’t popping champagne,” FinancialMirror.com, 08/12/2022, https://www.financialmirror.com/2022/08/12/fed-isnt-popping-champagne/
  3. https://www.fidelity.com/learning-center/personal-finance/how-to-beat-inflation

Health Benefits of Eating 100 Percent Cacao

100% cacao or dark chocolate with at least 70% cacao is ‘good for you’ When it comes to the excellent health benefits that come from the 100 percent cacao bean – the scientific evidence couldn’t be stronger in its favor. 100 percent cacao protects against everything from high blood pressure to heart disease and it’s full of antioxidants.

Cocoa powder is made from cocoa beans, which come from the plant Theobroma cacao L. Cocoa beans are the primary ingredient in chocolate, but they can also be ground into cocoa powder. The powder provides many potential health benefits.

Health Benefits

Cocoa powder provides tons of benefits, especially if your powder is at least 72% cocoa. Here’s a look at some of the health benefits of cocoa powder:

Impact the positive benefits of the 100 percent cacao. In short, dark chocolate (the darker the better!) is great for you.   Here’s a breakdown of the science behind the cacao bean:

Full of Protective Antioxidants

The Journal of the American Medical Association reports that 100 percent cacao is absolutely packed with antioxidants. Antioxidants bind to what are known as ‘free radicals,’ destructive molecules that are implicated in heart disease and other ailments, and decommission them. “Our findings indicate that milk may interfere with the absorption of antioxidants from chocolate,” reads the AMA research, “And may therefore negate the potential health benefits that can be derived from eating chocolate.”

The proof is in this study: a group of test subjects were given a 100 gram chocolate bar every day, but the contents of the chocolate varied. On different days they each ate either 100 grams of dark chocolate by itself, 100 grams of dark chocolate with a small glass of whole milk, or 200 grams of milk chocolate by itself. Afterwards, the scientists measured the amount of antioxidants in their blood. Those who ate the dark chocolate alone had the most total antioxidants. And they had higher levels of epicatechin, a particularly healthy compound that is found in 100 percent cacao. The milk chocolate eaters had the lowest epicatechin levels of all.

100 Percent Cacao Chocolate Also Lowers High Blood Pressure

In one excellent study, subjects with high blood pressure were broken into two groups. Every day for two weeks, they all got a 100-gram chocolate bar (lucky test subjects!) Half the patients got dark chocolate and half got white chocolate. Those who ate dark chocolate had a significant drop in blood pressure (by an average of 5 points for systolic and an average of 2 points for diastolic blood pressure). Those who ate white chocolate saw no benefits.

Indeed, 100 percent cacao chocolate is so healthy that the University of Michigan’s “Healing Food Pyramid” includes it as a key component. As they explain, 100 percent cacao boasts all of these benefits:

  • Contains flavonoids called procyanidins & epicatechins; flavonoids are part of a group of antioxidants known as polyphenols and are found in a variety of foods including dark chocolate, tea, and various fruits and vegetables
  • Decreases LDL (“bad”) cholesterol oxidation
  • Reduces the risk of blood clots
  • Increases blood flow in arteries and the heart
  • May improve mood and pleasure by boosting serotonin and endorphin levels in the brain
  • Regular intake is associated with better cognitive performance in the elderly
  • Contains a number of minerals, including calcium, magnesium, and potassium

 


References:

  1. https://paleoproteinbrownie.com/pages/the-health-benefits-of-eating-100-percent-cacao-chocolate
  2. https://www.webmd.com/diet/health-benefits-cocoa-powder

Regular Exercise Is Essential for Healthy Aging

“Exercising regularly, every day if possible, is the single most important thing you can do for your health. In the short term, exercise helps to control appetite, boost mood, and improve sleep. In the long term, it reduces the risk of heart disease, stroke, diabetes, dementia, depression, and many cancers.”  ~ Harvard Medical

Getting and staying in shape is just as important for seniors as it is for younger people.

Regular physical activity or exercise helps maintain a healthy blood pressure, keeps harmful plaque from building up in your arteries, reduces inflammation, improves blood sugar levels, strengthens bones, and helps stave off depression, according to Harvard Medical. In addition, a regular exercise program can make your sex life better, lead to better quality sleep, reduce your risk of some cancers, and is linked to longer life.

Seniors stayIng physically active throughout the day by taking the stairs, doing yard work, and playing with your grandkids is vitally important.Hundreds of studies conducted over the past 50 years demonstrate that exercise and staying physically active helps you feel better and live longer.

To change the way you experience exercise, you can follow these tips to make workouts more enjoyable.

1. Mix it up. Change the activities you’re doing and the amount of time spent on each. Sign up for a Pilates class or try tai chi. Even a change of scenery can keep you motivated and active. For example, try a long weekend hike in the woods instead of some shorter neighborhood walks during the week. Choose combinations and activities that appeal to you. Whatever you choose, it’s best to be active at least three to six days a week.

2. Keep moving. Look for ways to add activity and recreational exercise to scheduled activity time—an extra lap around the mall when you’re shopping, some stair climbing, or a Saturday morning bike ride.

3. Wear a pedometer and heart rate monitor. A step-counter can up the ante on exercise, according to a 2018 review of six studies. Over all, those who wore a pedometer raised their physical activity by up to 3,000 steps a day compared with those not using a pedometer. In a classic review of 26 studies, published in The Journal of the American Medical Association, in addition to taking more steps a day, pedometer wearers lowered their systolic blood pressure by 3.8 points and lost weight compared with nonwearers. Setting a step goal counted for a lot. Those who did so significantly increased activity; those who didn’t generally remained at baseline.

A heart rate monitor (HRM) can help you exercise more effectively and efficiently. Heart rate monitors measure your heart rate while working out, which can help you reach your target rate safely and efficiently without exceeding your maximum heart rate. Exercise has dramatically different effects on the body depending on how high you push your heart rate and for how long. Training intelligently means using heart rate data to guide your workouts. Sometimes you might want to keep your heart rate relatively low to burn fat or pace yourself for a longer workout, but other times you might want to push it higher to build stamina. Heart rate monitors help you learn more about your level of fitness, train more effectively, and track your progress.

4. Plug in. Turn on your computer and power up with the great range of individual exercises and workouts from these organizations:

  • The American Council on Exercise offers an extensive library of exercises sorted by ability level, muscles targeted, or equipment needed, at www.acefitness. org/exerciselibrary. You can also view selected exercises in motion.
  • The Centers for Disease Control and Prevention posts video clips describing intensity levels as well as aerobic and strength exercises for home and gym. Easier variations on strength exercises are included. Go to www.cdc.gov/physicalactivity/ everyone/videos.
  • Collage Video sells a wide range of exercise videos. Find them at www.collagevideo.com.

5. Rise to the challenge. If your workouts aren’t challenging or interesting enough, expand your horizons by focusing on both exercise and healthy eating. The Presidential Active Lifestyle Award, at www.health.harvard.edu/PALA, encourages you to meet minimum physical activity requirements and also set healthy eating goals over the course of eight weeks, because it takes both to lead a healthy lifestyle.


References:

  1. https://www.health.harvard.edu/topics/exercise-and-fitness
  2. https://www.health.harvard.edu/exercise-and-fitness/starting-to-exercise#excerpt