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How do we engineer success and outperform the market average? No secret, no magic! Here are the five principles of engineering your investment success:
1) Master the formula of investing:
Understand that investing is one side of the financial wealth formula:
Investing money = Income - Expenses.
Regardless of how much income you earn, you must manage your expenses such that you can afford to invest. This means you do not invest the money you need to live your daily life, and if you need to invest more, look for ways to manage your expenses first.
2) Focus on what’s under your control:
No one and no mathematical model can yet predict the market fluctuations. If there was a prediction model that worked, there wouldn't be any stock market. Instead of trying to predict the market, focus on managing the aspects of investing that are under your control (e.g. how to evaluate a company based on facts) and never duel over variables that are out of your control (e.g. forecasting and timing the market).
3) Use technology to minimize decision making biases and fallacies:
Even the savviest investors are prone to decision making fallacies. Making decisions based on a hunch, or deciding first and collecting data to confirm it later are some examples of mind fallacies. Use software and algorithms to collect and synthesize the data and adhere to this process to gain an upper hand in investing.
4) Hold until facts change:
Everyone defines buy and hold investing differently. The most practical example we have found is that market fluctuations - especially price fluctuations - do not matter. Have 2-3 reasons for each investment you make. Periodically validate them and hold until those reasons are valid.
5) Live as an investor:
Investing is a lifestyle. Just like being a foodie, a globetrotter, a runner or a movie-buff is a lifestyle choice, so is being an investor. Dare to call yourself an investor, and invest in companies and products you relate to, and leaders whom you admire. Investing is the language of life, and you can make your portfolio represent your choices and your beliefs. It's a lot more real and way more fun!
As we said, there is not secret or magic behind investment success. It is engineered!