Are you someone who enjoys keeping a diary to capture your thoughts and feelings?
If so, consider doing the same for your investments. Keeping a journal to document your investment decisions, thoughts, and strategies can be incredibly valuable.
This kind of record, often referred to as an investment journal, can do more than just track your growth as an investor. It can also provide clarity on your decision-making process and help you learn from your mistakes.
Starting an investment journal doesn’t require much effort, but it does involve taking the time to put your thoughts on paper. Begin by outlining your investment style and philosophy.
As you go along, make sure to note the details of each investment and the reasons behind your purchase decisions.
Consider including specifics such as the stock’s name, the purchase date, the share price, and the number of shares you acquired.
Additionally, record why you bought the stock, its valuation, and any risks you considered before making the purchase.
You might be wondering, “How does journaling help me become a better investor?”
Here are four key benefits that an investment journal can offer.
Improved decision-making
It may seem surprising, but writing down your reasons for buying a stock can make you more conscious of your investment process.
By tracking the stock’s performance over time and analysing the results, you can refine your decision-making for future investments.
Start by asking yourself why you want to buy the stock.
Is it because of a hot tip, or have you thoroughly studied the company’s fundamentals and prospects?
If the purchase was made on a whim without solid reasoning, it should be seen as an impulsive decision.
Keeping a detailed journal allows you to track these decisions, assess their outcomes, and understand the cost of acting on impulse.
Even if you did your homework before buying, there might have been factors you overlooked.
By documenting your decision-making process before purchasing, you can revisit your notes when new information emerges and identify gaps in your strategy.
Repeating this exercise with each stock you buy helps you build discipline and recognise patterns that lead to success or failure.
These insights can then be applied to your next investment, helping you refine and improve your stock selection process.
Emotional management
Here’s what investors do not like to admit: your emotions run high when your hard-earned money is at stake.
The two most common culprits are greed and fear, which can lead to costly but avoidable mistakes.
Greed drives investors to chase hot stocks to unsustainable levels, often resulting in significant losses when the stock inevitably crashes.
Fear, on the other hand, can trigger panic selling during a stock’s decline, locking in painful losses.
Keeping an investment journal can help you stay objective and rational.
By journaling, you ground yourself in logic, forcing yourself to write down valid reasons for each stock purchase or sale.
This practice allows you to calmly reflect on your emotional state and avoid making rash decisions that you might later regret.
The goal is to steer clear of impulsive moves driven by greed or fear, giving yourself time to carefully consider each decision.
Instead of reacting hastily, you can approach each investment with a clear mind, applying logic and proceeding with caution.
Every investment decision should be guided by careful thought, free from the emotions that can sabotage your success.
Tracking your investment progress
What better way to track your investment journey than by keeping a journal over many years?
You might be surprised at how your investment goals evolve as you go through life’s major milestones, such as marriage, buying a house, or having a baby.
A journal helps you monitor your financial goals and assess how well your investments have performed over time.
As you grow and mature as an investor, you can review whether your investment performance has improved in line with your experience.
Another key benefit of a journal is that it keeps you accountable to your investment goals, allowing you to track your progress toward achieving them.
If you adjust your objectives along the way, the journal can help you see if your investments are delivering the results you’re aiming for.
For example, as you age, you might shift from being a pure growth investor to one who prioritises dividends.
A growth investor might favour riskier stocks with high valuations, while a dividend-focused investor might prefer blue-chip companies with steady growth and consistent dividends.
As a growth investor, your goal might be to achieve an 8% annual return on your picks. Meanwhile, a dividend investor could be content with a 6% total return, with 4% to 5% from dividend yield and the rest from share price growth.
Your journal can help you track your transition from growth to dividend investing and ensure you’re on track to meet your evolving financial goals.
It can also highlight whether your stock choices align with your evolving strategy and life goals.
Learning from mistakes and refining your process
One of the most valuable aspects of keeping an investment journal is learning from your mistakes.
By reviewing your past entries, you can identify what strategies work and which ones don’t.
This reflection kicks off a learning process where you analyse your previous decisions to understand what went wrong.
Over time, these lessons help you refine your investment approach, making you a more skilled and less error-prone investor.
Mistakes are an inevitable part of any investment journey.
Instead of feeling embarrassed by them, see them as valuable learning opportunities.
Mistakes generally fall into two categories: errors of commission and errors of omission.
Errors of commission are more common and involve buying stocks you shouldn’t have.
Reviewing your journal to understand the thought process behind these mistakes will help you learn what went wrong and avoid repeating them.
Errors of omission, on the other hand, are harder to track and involve missing out on stocks you should have bought but didn’t.
One approach is to write down investment ideas that caught your interest but that you hesitated to act on for whatever reason.
Revisit these ideas later to see how they performed.
By learning from errors of omission, you can better seize future investment opportunities.
Finally, journaling helps you develop a more disciplined and consistent investment strategy.
If you want to become a better investor and improve your results, keeping an investment journal offers many benefits.
It is an activity I highly recommend.
Note: An earlier version of this article appeared in The Business Times.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
