How to think like an investor

Pavan Anoop | 12/26/23


Many beginner investors think that investing is simply about analyzing data and predicting the market; however, investing also highly depends on your state of mind. Your attitude towards investing can completely change how you interpret information. Successful investors can understand and manipulate their emotions, goals, and ways of thinking to get their desired outcome. The first step to this success is recognizing what the most common pitfalls are so that you can catch yourself when making your own investments.

Physiological Pitfalls

One of the most common pitfalls that investors experience is the fear of missing out (FOMO). This can lead to impulsive decisions that don’t consider the facts. Many may think that an investment is a good choice because everyone is investing in it, but remember that the majority of investors in the market do not make money. You have to base your decision on facts and your own judgment to assure the best result. From time to time you may feel that you missed out on an opportunity, but that it is ok. What matters is that you have full control and confidence in your decision before you make it.

‎ ‎ ‎ ‎ ‎ ‎ ‎ ‎ ‎ ‎ Sometimes, you may have full control and confidence but still end up losing money. If an investment starts to fail, you must remain rational. Many investors are scared of loss and want to make every investment a win. This is not possible; every investor has some losses, but successful investors have more wins than losses. Learning to accept loss can lead to less losses. When a stock falls, many hold onto it, without analysis, hoping it will go up. Sometimes this will not happen, so continuing to analyze the stock and decide whether to keep it or not is the best course of action. Taking a loss is ok; just try to have more wins than losses.

‎ ‎ ‎ ‎ ‎ ‎ ‎ ‎ ‎ ‎ When making an investment decision, investors might start analyzing a company with a predetermined bias. The information that you look at should determine your stance on an investment. You should have a stance then defend it with information you find. Investors may block out certain red flags because they have already decided their stance or have a fear of missing out. A successful investor will seek out diverse information and tweak their existing investment strategy to match new details.

‎ ‎ ‎ ‎ ‎ ‎ ‎ ‎ ‎ ‎ One common theme emerges between all these situations: Emotions cloud your judgment and can lead to bad investments. Whether it's fear or greed, emotions can override your judgment and make you stray from your investment strategy. Investors have to stay disciplined and make informed decisions to become successful.


Certain investment mindsets can guide you to success. One well-known philosophy comes from the book The Intelligent Investor where Graham likens the stock market to a man who randomly tells you prices. The man is sometimes moody and gives you bad prices while other times he's happy and gives you good prices. The key is to only listen to the man when he is giving good prices. This means that you should invest in the stock market when it is to your benefit. You do not always have to keep investing. When markets are risky and volatile, it is ok to sit out. Remember: the stock market is your tool to make your money work for you.

‎ ‎ ‎ ‎ ‎ ‎ ‎ ‎ ‎ ‎ Another key philosophy to remember is the difference between an investment mindset and a speculative mindset. A speculative mindset takes on more risks by assuming certain details. This type of investor will not conduct in-depth analysis and focus more on short-term trends. While this mindset is not necessarily bad, it can lead to more risk leading to the possibility of loss. On the other hand, an investment mindset aims to shield against risk and make more calculated investments to reliably grow your money. Unlike the speculative mindset, it is focused on long-term trends and value investing. Understanding the type of investor you are can allow you to capitalize on your disadvantages.

‎ ‎ ‎ ‎ ‎ ‎ ‎ ‎ ‎ ‎ After reading and understanding investing and its nuances it's easy to forget that stocks are just companies. Many times investors look past their feelings towards a company and forget what they are investing in. When you invest, you are giving money to a company to fuel its growth. Investing is a means, not just to grow your own wealth, but also to grow the wealth of the companies that you invest in

‎ ‎ ‎ ‎ ‎ ‎ ‎ ‎ ‎ ‎ The way you think about investing can alter the investments you make. Long term investors have more opportunities to capitalize on allowing them to be patient while traders will have completely different mindsets more focused on risky short-term gains. Mindfulness and thoughtfulness can allow you to make better decisions. However, you must also understand your own goals and situation.

Thanks for reading and happy investing!