This is why you need a systematic written plan

systematicinvesting May 23, 2020

What is systematic investing?

Success in investing over time is more about process than outcome.

A good process will not mean all your investments are winners, of course.

After all, every investment involves a mixture of skill and luck.

You can control your skill or your process, but you can’t control luck.

Sometimes you will be blessed with luck, and other times cursed.

But as Gary Player, the champion golfer said: The more I practise, the luckier I get.’

Two ways to invest

There are two ways to invest.

You can either develop your own systematic written plan, with a defined set of rules to follow, or you can make ad hoc decisions based on a gut feelings, tips from friends, or some other emotions-based approach.

If you aren’t following the former approach, then almost by definition you must be following the latter.

And the problem is that if you approach investing without a rigorous set of rules to follow then you’ll ride a rollercoaster of emotions, and you’ll suffer angst through each and every period of turmoil or volatility.

Far better to adopt a systematic approach so that you don’t have to make challenging or pressured decisions under duress.

If you think about your investment journey as a graph, a worthy goal could be for you to become less and less emotional over time.

Actioning a systematic approach

It’s really all about the process.

If you have a flawed process, then you are simply bound to repeat your mistakes.

You’d be surprised, though….it’s usually the last thing we choose to inspect when a decision ‘goes against us’.

It’s natural to look externally for blame rather than internally.

And in some cases, it will be an external issue that results in a failure, not your internal process.

But if the process is right, then over time you’ll assuredly win more than you lose.

Develop a written plan

We can tell the difference between an experienced investor and an inexperienced one simply by whether they’re following a systematic or written plan.

Sometimes it may appear that very experienced investors are following hunches, but the reality is usually that they’ve been following a systematic approach for so long that they just know intuitively what to do.

That’s a great point to get to, but unless you’ve invested through several cycles successfully the reality is that you need to adopt a systematic approach to guide you through the great morass of opposing opinions which plague the internet and online media these days.

Systematic investing is where you have developed a rational process that contains ground rules and signals for buying and selling investments.

Systematic investing takes time to master, but is important because its primary aim is to assist you in your decision-making process.

That is, avoid using your gut instincts.

Keeping on track

Now simply announcing to the world that you have developed a set of buy and sell rules doesn’t make you a systematic investor.

But sticking to it does!

When you find yourself itching to buy or sell an investment, go back to your system.

-Does it comply?

-Or are you making your decision based on a ‘fear or greed’ basis?

-Are other investors or commentators influencing you?

Each time you make a decision it should adhere to your rules.

If you deviate from your plan in any way you need to ask yourself why this has happened.

Did you make a panicked or emotional decision when the pressure was on?

Or does your plan have a flaw which might need to be tweaked or adjusted in some way for the future?

Having a system is important because it guides you to follow successful habits, until eventually, you’ll make successful decisions intuitively.

I discussed these ideas a little further in the short video here

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