ZT: Investesting self-confidence easily acquired asset (investing psychology2)

zippo

Cliff Pletschet, financial columnist
Posted: 05/07/2010 09:14:26 AM PDT
Updated: 05/07/2010 04:55:08 PM PDT

Beginning investors understandably worry that they lack the knowledge to create and manage their own investment portfolio, but it's not really nagging ignorance that bothers them at the outset, but rather an often-undetected lack of self-confidence. They freely use the question mark and exclamation point when I suggest they work on their own. Too many times I've heard, "Who? Me?"

They should know that while gaining knowledge in any field can be a lifelong journey, they need to be reminded that they don't need to know everything about money to be a success. Acquiring sufficient self-confidence is a much shorter and more manageable hurdle.

In other words, confidence is more important than knowledge at the outset because confidence freely opens the door to knowledge.

"You can't lead a cavalry charge if you think you look funny on a horse," Adlai Stevenson once said. So if the leader believes in himself or herself, then half the battle is won.

How does one create self-confidence? Here are some thoughts:

Dive in. Take the plunge and accomplish one simple task and go from there. If you dive into the deep end of the pool you can immediately conquer the water by coming up for air and pulling yourself out. In time, you'll learning the necessary strokes to get from point A to point B. Perhaps you haven't learned to swim yet, but you have discovered an important fact: Survival in the water is not as complicated as you thought. In the pool, you don't need to be Michael Phelps or Esther Williams to survive. In other words, you don't need to be an instant expert or even a lifetime expert to make your way in the investment world.

Facing the fact that you will never learn everything there is to know in that world will invigorate self-confidence. That world is massive, complex, intimidating and risky and even longtime mavens in the capital markets don't know everything there is to know. A new plethora of complex lingo has surfaced in the Great Recession to test human comprehension more than ever. Personally, the more I read and research, the less I know. If some great philosopher didn't say that, I'll take credit for it.

Set your limitations and goals. After you have learned a few pertinent facts, you will discover just how far you need to take your self-education. You may expand your financial horizon later on when you feel more on solid ground.

Studying and research. Reading financial publications to get a handle on investment information is helpful, but don't dwell on topics that are overly-complex and seem to be beyond your investment agenda. There are a lot of financial products and strategies that you can live without.

Develop an inquiring mind. Asking pertinent questions, making sure they are really pertinent to you, is critical.

Questions allow you to focus in on what you really need to know, what's important to you. There is no such thing as a dumb question.

It's a job. Taking on an investment portfolio is not unlike the first day on a job. You feel somewhat intimidated and full of concern as to whether you can make the grade or not. But as time goes on, you will discover that your fears were unfounded. You grasped your duties quicker than you thought you would.

Keep it simple. As noted, you will discover that you can make money in the capital markets (stocks, bonds, real estate) without getting into complex investments. Simplicity is an important hallmark of an investment portfolio — just as important as their transparency, diversity and liquidity.

Stay the course. Don't let your confidence level slip away when you make a mistake in managing your portfolio.

Making mistakes is part of the ongoing learning process.

Through e-mails and letters, I can detect when a reader has improved his or her self-confidence. They go from simply asking questions to relating how they have created and managed an investment portfolio over time. They come off as proud of their work. Pride is an indication of self-confidence.

Any investor dealing with an advice-giving broker or financial planner still needs to work on confidence — confidence that the adviser will do the best job possible. Total reliance on an advise is not a good idea. You still need to set goals and limitations, ask questions, do some studying on your own.

Trust comes heavily into play here. You need to trust your adviser implicitly. If you're having a communication problem with your adviser, you need to cut the cord and go to another adviser, or better still, take on the job yourself. Your dealing with an adviser giving poor or complicated advice is part of your leaning experience and should help you to build up your self-confidence.

whzdf