Why independent thinking is crucial to your investment success

How many times have you heard of someone who invested in a stock just based on a rumour or the latest tip only to see them get burnt in the stock market? Or maybe it wasn’t a rumour or a tip but the latest, most fashionable stock that the media was covering then… which duly tanked the moment you bought in?

Well, guess what? You only have yourself to blame.

You can’t blame anyone or anything for your investment gone bad if you didn’t perform your due diligence before you put your money in. Like how you need to check the engine, brakes, gear shift, etc on a pre-owned car before you plonk fifty grand on it and speed 90 mph down the freeway, similarly you have to do your checks before you invest any grand sum into any stock. If not, the results could be the same – you end up in a big crash at the end. Ouch!

To be a successful investor, you need be an independent thinker and you need to:

  1. Be 100% responsible for your own thoughts, decisions and actions. Because at the end of the day, it is your money that’s on the line and no one else is going to look after it for you better than you can.
  2. Avoid investing in anything just based on a rumour. Or a tip. Or because it was the hottest stock in fashion right now. Or because the gossipy, old lady down the street is telling you to do so. And usually by the time it reaches her, it’s probably when you should be most wary!
  3. Always do your due diligence. Sometimes rumours or tips are a great way to find an investment idea but you always need to do your checks before you invest. Have you understood and explored the company’s business model and financials? Are you comfortable with the CEO and the management team that’s leading the company forward? Have you done a proper valuation and whether it’s the right time to invest? All these things matter if you’re gonna invest your hard-earned money into something and you want to sleep soundly at night.
  4. Be contrarian and not follow the herd. When rumours are flying around and a stock’s price is being pushed up because widespread optimism, that’s usually the time when more savvy investors are already selling their shares for a nice tidy profit. You see, they already got in on the cheap ages before the rumours started coming out. On the other side of the coin, when there’s widespread pessimism around a stock and its price is being pushed down and everyone is selling out of fear, the more savvy investors are the ones buying the stock up at bargain basement prices. (Again, all this is based on having done your due diligence. You should never buy a stock just because it’s “cheap” and everyone is selling it!)

Always remain critical with your thinking and rigorous with your analysis when it comes to investing. And the clearer you become with your very own independent research and analysis, the more self-confident you will become with your own investment decisions without ever relying on anyone else.

Like the oft-quoted saying we all know so well:

“Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.”

Enjoy the fish!

Adam Wong is the editor-in-chief of The Fifth Person and author of the national bestseller Lucky Bastard! which made the Sunday Times Top 10 Bestseller's List in 2009 and Value Investing Made Easy which made the Kinokuniya Business Bestseller's List in 2013. In 2010, he appeared on U.S. national television on the morning show The Balancing Act. An avid investor himself, Adam shares his personal thoughts and opinions as he journals his investing journey online.

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