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Discipline is a key part of smart investing. History tells us that the best investors are those who look at investments for the long term, understand risk well and invest accordingly, don’t panic when volatility hits and have learnt how to leverage data and avoid rumours.
How do you build discipline? One way is to avoid distractions that often come in the way of disciplined investing. These distractions are often at a conceptual level, but if you can get these right, they can go a long way to help you make great investment decisions. Here are four market distractions and how you can avoid them to make smarter decisions.
1. Stock trading versus stock investing
both involve buying and selling stocks depending on market conditions. But the processes involved in carrying out these transactions differ vastly.
Professional stock traders rely heavily on processing the most recent price data quickly—often down to seconds. Their goal is to capitalise on price fluctuations with speed. Traders benefit from quick buy/sell orders, and while it can be lucrative, such trading is for the experts who have the skills, experience and the tools in place. These trades are all about speed and stocks are held for just a day or so.
However, for most others, investing relies on knowledge and patience. If trading is a sprint, investing is a marathon. When investing, you emphasise on business analysis, fair price, and long-term holding.Investment platforms like can help you dive deep to make your own informed decisions.
Aside from volatility, there are also fundamental reasons why you should avoid day trading unless you absolutely know what you are doing:
Trading is costlier than investing because it entails more buy/sell orders in a shorter time, leading to higher associated costs like brokerage, taxes, duties, etc.
Day trading attracts Short Term Capital Gain (STCG) tax at a flat 20 percent, whereas a is imposed on long-term investments.
If you don’t have the skills and experience and can’t take high risks, don’t get tempted by what someone else is making in day trading. In the markets, it is always wiser to play it safe and stick to what you know best.
2. Watch for market mood swings
One of the biggest enablers of day trading is a market. It is in the market’s nature to fluctuate and attempting to predict it is extremely risky and even the best can get it wrong. The wiser option for most investors is to concentrate on investing in healthy companies.
It may feel like you’re missing out on opportunities at times, but the whole idea of healthy long-term investments is that in the long term you usually will win, no matter how the market feels on a given day.
However, market volatility opens up long-term investment opportunities too. The market overreacts to bad news and good news alike, which opens up buying and selling opportunities for your long-term investments.
3. Avoid peer pressure and herd mentality
Blind comparing is never a smart game—just like comparing how any two children do in various activities isn’t healthy, because each child is unique, it isn’t smart when it comes to investments too. Don’t fall prey to peer pressure and herd mentality because that could lead you to making imprudent investment choices.
Here are some broad thumb rules you should set for yourself when it comes to investing:
First, determine your investor profile and understand what kind of investor you are.
Avoid anonymous tips and herd mentality—usually such tips are planted by vested interests and not thinking for yourself can result in serious financial damage.
Once again, look at investments from a long-term perspective.
4. Don’t blindly follow billionaires
It may sound counterintuitive, but billionaires are not the best investing role models. First, some of them may be trying to use their social influence to boost their own interests and you may be unwittingly benefiting them and hurting yourself.
Second, their risk appetite is vastly different. You may play by the mantra of ‘high risk, high reward,’ but for the super wealthy, risk is significantly lower since even a heavy loss would not leave them in a state of financial insecurity as it might do for you.
The bottom line is that there are no get-rich-quick schemes in the stock market. Profitable investing takes time, patience, and continuous rigour. There are bound to be one-hit-wonders in the stock market, but that does not apply to the majority of investors and once lucky doesn’t mean luck will always stay by your side. It is wiser to have discipline and rigour on your side.
Avoiding stock market distractions can help you make healthy investment decisions in the long run. Understand yourself, your risk appetite, continuously update skills and learn to make better decisions and your investment journey will be far happier and profitable for you.