From the Editor: Yesterday you had a chance to see the results of Keith's big "experiment," where readers who followed a core strategy had a chance to grow the value of their entire portfolio by as much as 717% in total gains. But that's not Keith's only secret. Here's another way to drastically improve your results...
Every investor has a story about the one "big gainer." But the really successful investors have several stories... and the data needed to replicate their success over and over again.
What's their secret?
It's not QuickBooks or an Excel spreadsheet or the yellow ledger and pencil some old-schoolers still use to log pluses and minuses in a single column.
They can be useful tools, of course. But neither of them tracks the decision-making process itself. It's not for nothing that Barron's research reflects that 85% of all buy/sell decisions are wrong. The reality is that most investors buy when they should be selling and sell when they should be buying.
It's only when you begin to understand what went into each trade that you can begin to replicate your successes and avoid your failures.
And for that you need an investment journal - one that records three things for maximum profits...
No. 1
Where Was the Market at the Time?
Most investors understand that they have to track an entry and an exit price. That's a start.
But in order to really get a handle on performance, I think it's especially helpful to track where the markets were when I entered an investment. And, as a part of that, which way they were headed when I finally pulled the trigger on a trade.
I like tracking this because it helps me recall key details months or even years later when I am making a buy-sell-or-hold decision. Where it really gets interesting, though, is when you can start looking objectively at your own trading goals versus what you actually did.
For example, if you are a deep-value investor yet your journal shows you are consistently buying in at peaks, something's wrong.
Or, suppose you are a contrarian. If you're consistently buying in when the momentum's against you, then you have a basis to see that you're doing what you're supposed to for maximum profits.
I could go on, but chances are you get the point - you cannot form good habits without the data needed to make sure the habits you already have are working... or not.
No. 2
What Were Your Expectations?
This is a big one for me.
I've helped hundreds of thousands of investors navigate the markets over the years and I hear time and again that everybody "wants to make money" when I ask them what they want from an investment.
I do too, but not every trade turns out the way we want. That's reality, and without noting your objectives at the time you placed the trade, you can't declare victory because you don't know what it looks like.
The reverse is also true; you cannot declare defeat because there is no basis for what you hope to achieve versus what you think a current investment is actually "worth."
So I encourage people to note their expectations.
If you're buying a stock for income, note that, along with how much money you expect it to kick off. That way you can look back years from now and really appreciate something like an American States Water (NYSE: AWR) pick, which has increased its dividend for 59 years.
If you're hopping on the Facebook Inc (Nasdaq: FB) train for nothing more than the promise of somebody paying you more in the future than you paid today, then note that it's a "buy and hope" investment. Or a "flyer."
If you got a hot tip, track the source so you can go back to the well for more at a later date if you are so inclined. And to be clear, I am talking about legal sources here - no "wolves" on Wall Street kinda stuff.
It's important to use a nomenclature that means something to you so that you can quickly and easily discern what you expected so that you can match it up with reality later.
No. 3
What Was Your Emotional State at the Time?
And finally, note your emotional state.
You may think this is a peculiar thing to note, but in reality it's very, very important because trading on emotion is a shortcut to a lot of red ink.
When you took a shot at a high-flying tech stock with poor fundamentals, was it the thrill of the gamble? Were you going through a divorce when you sold... even though you might have wanted to keep the stock?
Not many people know this, but hedge funds and proprietary trading shops will often pull even their best trader off a "desk" if that trader's mind is cloudy or emotional state compromised.
The reason really doesn't matter... marriage, divorce, a new car, children. Life has a funny way of dealing up hands we least expect when we least expect them.
The markets will always be there, so if you see a pattern of difficult trades in your journal that were made under challenging circumstances, there's nothing wrong with stepping away for a while.
Again, the markets will always be there... and so will your money, if you respect the conditions under which you put it to work and the reasons why.
About the Author
Keith is a seasoned market analyst and professional trader with more than 37 years of global experience. He is one of very few experts to correctly see both the dot.bomb crisis and the ongoing financial crisis coming ahead of time - and one of even fewer to help millions of investors around the world successfully navigate them both. Forbes hailed him as a "Market Visionary." He is a regular on FOX Business News and Yahoo! Finance, and his observations have been featured in Bloomberg, The Wall Street Journal, WIRED, and MarketWatch. Keith previously led The Money Map Report, Money Map's flagship newsletter, as Chief Investment Strategist, from 20007 to 2020. Keith holds a BS in management and finance from Skidmore College and an MS in international finance (with a focus on Japanese business science) from Chaminade University. He regularly travels the world in search of investment opportunities others don't yet see or understand.