How to Build your Confidence in a Stock Choice

Today I’m going to talk about how to build your confidence in a stock choice.

By this point, you’ve completed some really big investing milestones. You’ve:

• Decided to start investing
• You’ve defined what financial freedom means to you
• Learnt what the value investing strategy is
• Learnt the 4 Value Investing Principles: Principle 1, Principle 2, Principle 3, Principle 4
• Learnt what is a stock

And now you’ve thinking that you have a really good business that you want to invest in.

But you’re nervous.

It’s scary to hand over your hard earned money. This is when the voice inside your head gets up onto it’s soap box and starts spewing words of self doubt 

“You don’t know what you’re doing”

“What is if you make a mistake”

“Why do you think you should be able to do this”

At least this is the case for me. 

My inner critic was loud. Even nasty at times. My inner critic likes to wait until I’m bravely trying something new, or a bit sleep deprived, or when I’m feeling vulnerable for another reason to add it’s two cents. I don’t think I’m alone in this timing.

So let’s talk about a strategy you can use to help build your confidence about a stock you want to buy. 

First, you need to acknowledge that because you’ve dedicated a lot of time to learning about a business, that you are now wearing rose coloured glasses. Meaning, if you’ve made it this far and the business is still on your “to buy” list, then it’s now going to be really hard to see any of its flaws.

How to Stay Objective About the Business

I like simple, efficient processes in both my professional and personal life. This is why I’ve gravitated towards the Rule #1 Investing aka Value Investing strategy. They approach investing in a very systematic way so I would only expect them to approach analyzing their flaws about a business in the same manner

Danielle Town, along with her father Phil Town outline a checklist of mistakes that great investors have made in their book “Invested - How Warren Buffet and Charlie Munger Taught Me to Master My Mind, My Emotions, & My Money. Use the “Expensive Errors Checklist” starting on page 233 of Invested to help you zoom out and critically examine the business you’re seriously considering buying.

Once you’ve gone through the checklist, you’ll either be more certain about that business or have concluded that it needs to be moved to your too hard pile where you can revisit it in the future.

Be Kind to Yourself as You Learn

Also, remember that you’re learning how to invest so it’s inevitable that your confidence in the beginning will not be the same as your confidence a year from now. Give yourself some grace and kindness as you learn. You’re going to make some mistakes, you’re not going to do things perfectly and you’re going to wish you could have some do-overs but this is all part of the process.

Acknowledge what you’re feeling and trust yourself that you are smart and capable of learning a new and exciting skill. Oh, and if you’re inner critic still needs a kick in the butt so it quiets down, check out my blog post on this subject here.