Investor discipline

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 needs to be at the forefront of any investment for both seasoned and amateur investors. This entails reading, carrying out research, showing interest and most importantly taking the initiative to find out where people’s own hard-earned money is being invested.

More importantly, they need to become accustomed to understanding 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 how to analyse company’s financial performance over a period of time.

The above factors, among 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.

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 of how markets work, is to know how news impacts valuations, and how key events such as central bank meetings influence market sentiment and direction. They must then be able to use that knowledge to build up their 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 take 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 knowing 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?


This article was issued by Mark Vella, investment manager at Calamatta Cuschieri. For more information visit, The information, view and opinions provided in this article are 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.

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