Today we’re going to take a look at settling with your stock trade.
Why are we looking at this, or why are we talking about it?
Well, because we have a new book that is all about inner game for traders >>> Mindsets of a Master Stock Trader
Difference Between the Outer and the Inner Game
When you look at stock trading in general, or you look at being successful at anything, there’re two parts.
You have the outer game and the inner game. The inner game is all the emotions, the psychology, the mindset. The outer game is the physical things the outer stuff. For example, if you’re playing golf, it’s hitting the ball, the position, the pose. And the inner game is the concentration, the way that you deal with a loss or a missed putt.
That’s how the difference is between the outer game and the inner game. And they all work together to be able to push you further in becoming successful.
That’s what this book is all about.
Settling with Your Stock Trades
A lot of people don’t like the word settling. When we look at a dating or marriage relationship, that word is common.
However, let’s break it down here a little bit further.
If we look at buying something (new dishwasher), how do we make this decision process?
Well, there are two main ways to take this approach. You could try to get the best dishwasher that you could get but still pay the lowest price.
What you’re trying to do here is maximize your purchase decision. You try to get the best for your money.
The other approach is to satisfy your purchase decision. You want to spend in the range of $200 to $800. I don’t want to go above that. Of course, you might have a different range. I don’t need a premium dishwasher, but I want something in this range.
You might be satisfied as long as it works and it has some decent space – show me something.
In that case, there migth be 4,5 dishwashers that come up. And now you have to decide what is your choice number 1.
There’re these two ways to make a buying decision if I’m looking for a dishwasher.
#1 – Do I want to maximize my purchase
#2 – Do I want to satisfy my needs
There’re, of course, pros and cons to both of them.
Pros and Cons – Buying Decision
With maximizing, you get the best for your money. With satisficing, you don’t always get the best for your money. But you save a lot of other things.
In the first case, you get the best deal. However, with option #2, you save time and energy. You don’t have to hunt for a dishwasher.
Whereas with maximizing, you might need to run around to three or four stores to figure out what’s the best deal.
You might need to:
- clip some coupons
- apply for a credit card
You’re trying to maximize the purchase.
On the other hand, you can save your time and energy and find something that works, and you’re good. I don’t want to run around four stores. I want to save time. I want to save energy. I want to make sure it works for a while, and that’s it.
What is the Better Approach?
Typically what happens is that maximizers are usually less happy with their choices. They’re trying to maximize their purchase. They are trying to get the best bang for the buck. If a new dishwasher comes around with a better deal (a month later), they might regret their purchase.
Whereas satisficers are usually more happy with their choices because it’s good enough. Even if there’s a better one coming along, I already took care of it, and it’s done.
You get to the done part quicker.
Making Decisions in Trading
There are basic questions.
Do we maximize, or do we satisfy ourselves when we look at a trade?
Which approach should you take?
Everybody’s going to be a little bit different depending on personal needs.
If I told you that you could earn a 12% return on your money, but you had to hunt for stocks, evaluate your trades, and be on top of your trades, would you do that?
Would you do that if you have to manage your trades, make sure everything was lined up but you got to make 12%?
Think about that.
Or maybe if I told you that you’re only going to make a 9% return on your investment, but you just put a trade on and don’t stress too much about.
You don’t have to hunt for new stocks; you trade the same stock over and over again. Is that good enough for you?
That’s the difference.
You could make 12%, but you have to:
- search for stocks
- watch your positions
- spend more time
- be at the screen longer
- be more stressed
Also, you might be a little less happy because you’re worried about the possibility that you’ve chosen the wrong stock.
In another case (9% return), you just put a trade on, and you don’t have to spend a lot of time searching for stocks. It could be the same index. It could be the same 5 or 10 stocks. You don’t have to watch your position as much. You might not get a perfect entry or exit or not as good as over here in the first case.
You don’t have to screen or scan the positions. You don’t have to be on this at the screen as often. You have a little bit less stressful because if it goes down a little bit, I’m okay as long as it’s 9%. It could be even 8%; I’m okay with that. And you’ll typically be much happier.
Is it Better for you to be a Maximizer or Satisficer?
You might answer this question differently. You might say that 3% is a lot of money.
And yes, you’re right.
3% is a lot of money, depending on how much money we’re talking about.
For you a lot could be $40,000, $8,000 $10,000. It could be $100. Everybody’s at different standpoints and different points in their life.
For you that 3% might matter more, and you’re okay to deal with all these other things. For other people, they’re going to say that they want to enjoy their life. They want to go and retire and relax. Maybe you want to travel and spend time with the kids.
You might be looking for the best dishwasher out there. Maybe you want to maximize your purchase and find the best dishwasher on the market.
But with stock trading, you might be good at 9% and with less work. Perhaps 8%-9% is excellent as long as you don’t have to do too much.
Other people might say that they want to maximize stock trading. They want to maximize their investments. They want 12%.
And about dishwasher – they don’t care.
They will buy the most expensive one because they’re making more money.
For you, it’s going to be different. But these are the two things. Eventually, you’re going to have to settle with something. You’ll have to settle. Maybe you will settle with a pic of stock, and that doesn’t matter if you’re maximizing or satisficing. But you’ll have to settle with the stock.
You’ll have to pick one. You’ll have to pick how much time and energy you want to put into this business.
There is a big decision like this: How much do I want to spend on the screens?
Once you pick those things, you’ll be in one or the other bracket. In some trades, you might want to maximize those trades. And other trades they’re good enough. Maybe they’re longer-term investments.
You might have different buckets of trades where some trades are more important than others.
This is my maximizing bucket, and this bucket is my satisficing bucket.
Pro Tip: Understand that eventually, you’re going to settle in some way or another. That’s because you have to pick a stock; you have to pick an investment vehicle or an index of some sort.
But then what is the work and the amount that you want to get into. It’s like buying a dishwasher. Do you want to maximize your purchase? Do you want to maximize your investment? Or do you want to satisfy something and pick one that works?
That way, you don’t have to spend the rest of the weekend dealing with it.
It’s a trade-off, and you have to understand what’s your choice and where do you want to be.
And what kind of life do you want to have?
That’s a personal preference, but understand that you’ll probably fall in one or the other or mix some trades in with one or the other. And then what you don’t want to do is miss align yourselves trying to maximize this trying to get the best return but not willing to put the work in.
That’s where trading losses start to take place.
You’re going to settle eventually and pick a stock. You’ll make a trade, but how will you make a choice?
You might say this is good enough and then move forward, or you’re going to try to maximize your return on investment.
That’s totally up to you. That’s a personal choice.
Get the new book Mindsets of a Master Stock Trader if you’re ready to learn the inner game of trading.