Five ways to boost your investment confidence

Self-confidence has many benefits. It helps us make decisions, it builds resilience, and helps us to move forward. We look at how to build investment confidence.
By · 27 Oct 2022
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27 Oct 2022 · 4 min read
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Confidence is the feeling of having little doubt in yourself and your own abilities.

In investing, not all investors feel confident, especially when they begin their investment journey. However, confidence can be built with time and experience.

Billionaire Warren Buffett knows all about the confidence struggle. In his early days, Buffett was so terrified of public speaking that he became physically ill whenever he had to get up in front of people. He was aware though, that if he wanted to make it in business and life, he had to learn to conquer his fear.

Rather than retreat, Buffett decided to face his fear, and attended a Dale Carnegie course in public speaking which changed his life. After finishing the course, Buffett knew he had to practice his newfound skills, so he approached the University of Omaha with an offer to teach the students about investing. They accepted, and Buffett taught at the University for a decade.

Just as Buffett was able to gain confidence in public speaking, investors too can grow in their investment confidence by following a few simple practices.

Start small

The best way to start your investment journey is to start small in a diversified fund such as a broad-based ETF. As you grow more comfortable, you can add to your holdings over time.

There is much to learn with investing, and you won’t be able to learn it all in a day, or even a year, so buying something small and watching it perform is a great way to learn.

By just taking a step at a time, and monitoring your progress as you go, it will help boost your investment confidence.

Read and Learn

Another way to become more confident as an investor is to read and learn.

Charlie Munger said, ‘In my whole life, I have known no wise people who didn’t read all the time – none, zero. You’d be amazed at how much Warren reads and how much I read. My children laugh at me. They think I’m a book with a couple of legs sticking out’.

There are plenty of great investment books available that can teach you about investing. You can buy books and learn from the investment greats such as Warren Buffett, Charlie Munger, Howard Marks and Peter Lynch.

Another way to learn about investing is to subscribe to an online investment website such as Eureka Report or Intelligent Investor, or by doing an investment course such as Bootcamp.

Learn the behavioural biases

It was once believed that investors were rational thinkers who made decisions based on facts and logic. However, since the 1960s, studies of behavioural economics have shown that a lot of our decision making is based on psychological, cognitive and emotional factors.

Over the last sixty years or so, hundreds of biases have been identified that affect the way we invest and make decisions.

Some of the more common biases include the confirmation bias, the herding effect, the anchoring effect, the overconfidence effect and the sunk cost theory.

As investors, it pays to learn about these biases, so that we can avoid them and invest with as much rationality as possible. It’s also important for us to understand the market cycle and the emotions that come with it, such as fear and greed.

Play it safe

There is always an element of risk with investing, but this risk can be minimised through diversification across many companies and sectors. This helps to smooth out any falls that come with any one specific company or sector.

A diversified portfolio of shares can be bought by way of an actively managed fund or a broad-based ETF.

Risk can also be minimised by holding a portfolio that has a variety of asset classes such as cash, fixed interest, property, infrastructure, local shares and international shares.

The other way to play it safe, is to be patient and think long-term. History has shown us that after every downturn the market has on every occasion, reached new heights.

Look for opportunities in down markets

When markets are gloomy and confidence is low, it can actually be one of the best times to buy into the share market. Warren Buffett famously advised us ‘to be fearful when others are greedy, and greedy when others are fearful’.

Markets are like a pendulum that swing from positive to negative then back to positive again. Buying ETFs or quality stocks when the markets are near their lows, can mean that you will be in the market when the pendulum eventually swings back up again.

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Philip Bish
Philip Bish
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