A loss of confidence can be devastating to investors. Particularly those that have the added stress of doing it for a living and do not have the safety net of a day job. In the current market environment, there is no doubt many are feeling pressures after the last 12 months which have been very difficult.
The reality is an enormous percentage of active investors lose money, and only a minority have the skill, determination, and dedication to truly last over the long term.
Yet even the most skilled and dedicated go through periods where their confidence is shattered following a bout of poor performance or events that accelerate a negative mindset. Only those that learn how to deal with a loss of confidence are in the minority of people who consistently make money.
Once an investor’s psychology is broken. It takes a long time and a concerted effort to bring it back. It requires delving into behaviours, what went wrong, how it went wrong, and how it must be fixed. As obvious as it sounds, ensuring that an appropriate risk management strategy is in place is a critical first step to preventing a downward spiral.
Getting over a loss of confidence begins with the need to forgive oneself in order to move forward and be able to return focus to finding the right setups and opportunities. Losses can come quickly and hard leaving many active investors bewildered and angry. It is easy to ask the question, “how could I have let that happen?” Finally, remember that success came once before, and with the right focus will come back once again.
Mistakes happen and an investor must always evolve their approach to continually improve and avoid serious errors. It is necessary to undertake a deep analysis of failures and make a plan to fix the mistakes made, ultimately improving the strategy to become a better investor.
Lastly, as difficult as it is when confidence is shattered, investors must force themselves to take on risk again, start taking positions, and gradually rebuild their confidence. It is necessary to acknowledge that life is full of risk and at times there are simply unpredictable events, so it is critical to be resilient, persistent, and always push forward.