Investing in ASX shares is as much about controlling and regulating one's temperament as it is about knowing the intricacies of the global financial system.
Having a long-term investment horizon is the advocate of most experts in the field, while refraining from speculative, over-priced assets at the same time. In stock investing, that requires making an informed decision on a raft of fundamental factors, not least the current economic climate.
Alas, the assumption is, that in order to beat the market, there must be some kind of magical elixir that separates the 'amateurs' from the market pundits.
Well, that's not so much the case, and most experts corroborate that you don't need an IQ of 160 to excel in the market. It's the right mindset, temperament and emotion control that might do the trick. That often means following a systematic approach, not unlike Warren Buffet's 7 rules to investing, for example.
Key lessons for ASX share investors from an expert
It appears ASX share investors who have the right mindset are set to perform well over the long run. That's according to what David Guy, joint managing director of Leithner & Company Ltd, had to say for Livewire recently.
Guy notes investors who adopt a pragmatic approach to their investment reasoning might make better decisions. It's all about the right mindset, staying away from "non-financial", cognitive factors.
"In that regard, individual investors who have the right skills and temperament (or professionals who are unconstrained by popularity) may have an advantage over 'the market' as they are answerable only to themselves," he said.
That involves knowing the business and industry you are investing in, Guy says.
Directly quoting investing legend Peter Lynch's book, Beating the Street, he noted "you use your edge by investing in companies or industries you already understand".
"Your investor's edge is not something you get from Wall Street experts. It's something you already have."
What does that involve?
Investors should retain a long-term approach in their investment philosophy, avoiding the short-term market noise while maintaining conviction on the ASX share, Guy added.
This ultimately helps guide investment reasoning as well, in the sense of buying and selling decisions, which – if you've ever had to deal with a difficult loss on the stock market, you'll know – can be quite complicated.
"You are not necessarily wrong just because 'the market' doesn't agree with you in the short, medium, and sometimes even the long term," Guy remarked.
"If a business remains attractive and the market pricing of that business remains attractive then you need to objectively review where you are at – would I buy this share at 4 cents, knowing what I know?"
"If so – and provided that you would remain appropriately diversified – then the fact you initially paid 33.6 cents for the same share should not preclude you from buying more."
Ultimately Guy advocates that investors remove the "non-financial" components to their investment reasoning in order to achieve a better outcome in the ASX share market.
"Investors may do better in the long run if they are not forced to make investment decisions based on non-financial factors (embarrassment, sick of explaining negative results to clients etc)," he said.
In the words of Peter Lynch once more – "it pays to be patient, and to own successful companies".
