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Want to Invest Better? A Successful Investor Explains How He Does It

By Jason Hall - Nov 24, 2020 at 6:04AM

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An investor with a track record of success breaks down his process and how you can use it to improve your own results.

2020 has been both a brutal and an amazing year for investors. Your individual results may have varied vary wildly depending on when you invested and whether you tried to time your way around the market's ups and downs. The catch? We often make investing harder than it has to be. 

Motley Fool Live host Jason Hall knows firsthand about the challenges of navigating the market's volatility and coming through it with greater wealth. On the Oct. 26 edition of "The Wrap" on Motley Fool Live, he breaks down the process he's developed over his career to help manage his portfolio -- and more importantly his behavior -- when the market gets volatile. 


Jason Hall: Thinking about volatility, here's how I manage my behavior. I think the most important thing that you can do is to Brian (Feroldi)'s point, you work backwards. Too often, we start with the stock price, and we work forwards from the price we're trying to get. If the stock price doesn't move the way we think it should, then we think it's up to us to do something about it, and we're doing it backwards.

I learned a long time ago after losing a lot of money on that lesson to figure out, what am I trying to do? What are my goals? My goals are to retire with financial independence. My goal is to have enough money to pay for my kids' college education. My goal is to get to that point where I have that financial independence, where I have total control over my financial decisions, and I'm not relying on somebody else paying me to make sure that I can do the things that I want to be able to do.

I have dates that are attached to those goals. That number makes it a heck of a lot easier to manage to look at the picture behind Brian there, those sharp, jaggy lines on the short-term and how it smooths over the long term. It helps me delay that gratification and get to that point.

The other thing that I've learned to do is understand my own emotions. Understanding the idea that losing money hurts more than gaining money feels good. The bottom line is that if the stock falls 10%, that's going to hurt you more than a stock going up 50% feels good. That's just human nature. That's baked into us. Once you understand that, it's easier to manage through that sort of thing.

Something else that I do to help me not do dumb stuff when the market is selling off, and not do those unforced errors, is (to) have a little bit of a plan. One thing I do, number one, retirement savings, college education savings, have home payoff, mortgage payoff account that I put money into every month. I make those things rigorous, regular investing events. I buy something every month without fail. Good market or bad market, I invest in something great every single month. Maybe something I already own, maybe something you have been following. But every single month without fail, I buy something. That works for me.

I also keep a small amount of cash. For me, it's 5%. That's the most cash I'll ever have in my investing accounts. If we see a 10% market drop over a short period of time, say the S&P 500 (SNPINDEX: ^GSPC) from a recent high to a recent low falls 10%, I'm going to take half that money I have in cash and I'm going to invest it in my favorite stocks that have fallen more. If we see a 20% drop from that recent high -- that only happens like once every eight or 10 years or so historically -- I spend half of what I have left. If we get a 30% drop, I blow out everything I have. I've seen two 30% drops in my 20 years or so buying stocks. Usually, we don't see that many.

The point is, I don't have too much cash, but I have some cash, because it keeps me from being dumb. Keeps me from selling stocks where the market's up high just because I feel like I need to be doing something because eventually they're going to fall. I build up my cash over time. I don't sell stocks to raise cash. That's how I think about it. Some actions that I take that work for me. I encourage everybody to take the time to figure out something that works for you to help keep you from doing stuff that's dumb, and doing the few things that are really smart that pay off the absolute most.

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