If I were giving advice to a young investor who’s just starting out, my advice might go something like this: Buy good companies at reasonable prices, benefit from long-term business momentum, and keep your turnover low so that you minimize your capital gains taxes. That’s rather simple-sounding advice. But we all know that things aren’t necessarily easy to do just because they’re simple. Unfortunately, investing is difficult because it’s heavily affected by human psychology.
As it turns out, investing is one long journey that requires us to master our emotions in order to perform well over the long term. Keeping a good mentality and thinking critically will give an investor a nice head start, but that’s not enough. You see, our memories can be very faulty. There have even been studies in cognitive science that show that people can even create false memories about events that never happened.
This is why I want to advocate for something that may seem trivial, or even outdated: keeping an investing journal. An investing journal is just like it sounds—it’s a personal record of our thoughts or feelings, only for all things investing. There’s no right or wrong way to write in an investing journal. You can do it the old-fashioned way in a paper notebook, keep a file on your computer, or write in your favorite note-taking application. I keep my own investing journal in a Google Doc.
I make new entries in my journal when I make a trade, or want to keep track of some interesting charts from an article I read, or take notes on a cool guest’s appearance on an investing podcast or YouTube show, or when I’m simply feeling a certain way. It doesn’t have to be a certain length—and a journal entry need not contain something profound. The other day, I literally wrote a 39-word post in my personal Google Doc. Last month, I wrote one of my longest posts ever, detailing some recent activity, thoughts on portfolio management, what feelings I had at the time, and even some thoughts on the overall market.
I mention those two posts together to reiterate that there’s no correct method to journaling. It’s a personalized endeavor designed to help you. If you try a method that doesn’t sit right with you, then feel free to change it up! I’m not the type of person to write structured posts monthly, quarterly, or on some other forced cadence. My main goal with my journal is to keep track of interesting ideas and to note my feelings, so my one and only rule is that I only write things down when I have something to say. In February, I only made three entries. Other months, I might be much more prolific. When I look back at the past entries in my investing journal, by far the most insightful entries are the ones in which I recorded my emotions. Because of this, I make sure to write an entry when I notice that I’m feeling a certain way.
Much of the reason I’m encouraging you to start this habit boils down to this: Journaling is definitely playing the long game. These posts you write down will likely become useful to you later, but not if you read your old posts constantly. It takes time for a journal entry to go from “it feels like I just wrote this” to an insightful record about the way you think. The length of time over which that occurs is probably different for each person. For me, it usually takes at least a few months for that process to occur, but it can also take even longer. Luckily, I don’t feel the urge to look back at my old posts very often—only when I realize a lot of time has passed.
These days, I don’t think anything of it when I write my feelings down in my investing journal. I just do it and move on. But when I go back to reread certain entries, they’re eye-opening. I wrote off stocks that would turn out to rally spectacularly and was bullish on stocks that would perform very poorly. I felt overconfident, fearful, paid attention to economic factors that didn’t matter, and was impatient at times. My past journal entries contain a who’s-who of mistakes and emotions in investing!
Thankfully, I believe these are mistakes that will make me a better investor. And by keeping track of my emotions, I can learn which areas still need improvement in my investing and thought processes. I may still regularly make mistakes as a professional investor, but I certainly make far fewer mistakes than when I first started. Now that I’ve been around the block a few times, I can spot some of the warning signs in certain industries or problems with specific business models. I know that I’m predisposed to feel certain ways based on what I’ve learned about my personality, so I try to make mental adjustments to combat those unhelpful feelings. It would be easy to feel down for continuing to make avoidable mistakes in investing. But I also know that I’ve done a great job of learning many things along the way.
This idea may not be new to you, as I’m surely not the first person to write in an investing journal. I can thank Buck Hartzell, the director of The Motley Fool’s* Analyst Development Program back when I went through it, for teaching me about journaling well over a decade ago. He’d be happy to hear that I’m still journaling, many years after completing the program.
I believe this simple act of writing things down can help any investor learn and grow, so I encourage you to consider joining me and starting an investing journal for yourself. The first step toward learning from your past mistakes is accurately remembering what you thought in the first place.
—Paul Chi
*1623 is an affiliate of The Motley Fool (“TMF”). 1623 is a separate entity, and all investment advisory services are provided independently by the asset managers at 1623. No TMF analysts are involved in the investment decision-making or daily operations of TMF.