< Back to Trader Blog Articles

Informed investment decision making & investor discipline


Be it an investment in a simple money market instrument and/or a bank term deposit, a short term investment or a trade for the longer term (such as an investment in a fund, bond or equity or a combination of either), preservation of capital and making money should be at the forefront of any investment decision. Let’s face it – any investor wants to make money, and taking informed decisions and being disciplined in line of thought are key traits any investor should hold dear to.

Taking informed decisions, both for the seasoned and amateur investor need to be at the forefront of any investment. And this entails reading, carrying out research, take an interest and most importantly take that initiative of knowing where people’s own hard earned money is being invested. More importantly, becoming accustomed about which factors could impact the value of an underlying investment.

It is important to get to know the key market forces, the way markets operate, political and geopolitical events, ongoing global economic conditions, interest rates, growth rates, understanding the operations of the individual companies where investor money is placed as well as knowledge, on how to analyse company’s financial performance over a period of time.

The above factors, amongst an endless list of others, both on a micro and a macro level, will, in one way or another, influence the daily value of an underlying investment, particularly impacting the key fundamental forces as known in economic terminology of demand and supply. Inevitably all of the above factors impact the demand and supply of, for example a bond or an equity, so it is imperative to be aware of how market forces, when combined, can impact the price of an investment.

The next thing an investor needs to have, after getting a good grasp how markets work, how news impact valuations, how key events such as central bank meetings influence market sentiment and direction is to use that knowledge to build his/her own investment discipline. This is no mean feat, especially when people’s money is involved. One of the hardest things to learn and achieve is the discipline (a trait which is instilled with the passing of time) of separating emotions from investment decisions; this is ultimately what distinguishes one investor from another.

Discipline can come in a number of forms, be it from sticking to investment horizons, patience, investing within an investor’s risk profile, but one of the most important types of market discipline comes in the form of knowing when to take a profit home, or rather, when to cut losses short. Put simply, it is when to know when to shy away from an investment and take a painful loss and call it quits, acknowledging that things might not have gone as originally planned, the ones which place invested capital at risk.

It is only where there is a devised plan in place that market discipline can really and truly be enforced. Whether it is a short term trading position, or a longer term core holding within a portfolio, every investor ought to know well in advance what to expect from a particular investment, what returns are expected, what level of risk is undertaken, and the time horizon for that investment to reap its dividends.

Investors should monitor their investments constantly. Get to know where they are investing. Devise plans. Set goals. Analyse exposures. Filter out the winners from the losers. Monitor portfolios and how external forces are impacting the overall value of the portfolio and more importantly, revisit the plan. Challenge it, the criteria, and the assumptions that were built around the plan. Have the objectives been met or have they fallen short of expectations? Is the investor overexposed to a company, sector, and country or asset class? Are things going as planned? Where are the investments vis-a-vis those levels? What course of action is being considered if the value one of an investment goes above (or below) those levels?

If the recent market activity and volatility during the month of May didn’t put any of those questions to the test, quite frankly I don’t know what will.

The Calamatta Cuschieri Traders Blog is available daily on CC WebTrader. Other market coverage including coverage of the International Bond Markets is also available.

The information provided on this website is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Similarly any views or opinions expressed on this website are not intended and should not be construed as being investment, tax or legal advice or recommendations. Investment advice should always be based on the particular circumstances of the person to whom it is directed, which circumstances have not been taken into consideration by the persons expressing the views or opinions appearing on this website. Calamatta Cuschieri & Co. Ltd. (CC) has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website. You should always take professional investment advice in connection with, or independently research and verify, any information that you find or views or opinions which you read on our website and wish to rely upon, whether for the purpose of making an investment decision or otherwise. CC does not accept liability for losses suffered by persons as a result of information, views or opinions appearing on this website.
This website is owned and operated by Calamatta Cuschieri & Co. Ltd (Co. Reg. No. C13729) of 5th Floor, Valletta Buildings, South Street, Valletta VLT 1103, Malta. CC is licensed to conduct Investment Services in Malta by the Malta Financial Services Authority.