QUOTE:
"If we don't discipline ourselves, the world will do it for us." William Feather
AN OLD-FASHIONED VIRTUE
One of the lessons to learn from our present economic woes is the value of that old-fashioned virtue, self-discipline. Looking back to understand how we arrived at our current situation, it is very clear that many in the banking system and regulatory agencies overlooked commonsense principles that could have helped us all to avoid this crisis. Why did so many ignore these principles? Well, following the basics would have meant hewing to the hard rule of self-discipline.
Self-discipline means doing what’s right, even if nothing bad will happen to you in the short term if you don’t. It’s especially difficult to maintain self-discipline if lots of nice things, like big bonuses and fancy houses, make doing the right thing look like a loser’s choice. What the economic melt-down demonstrates, however, is that quite apart from the moral value of doing the right thing, the utilitarian benefits of self-discipline make you a winner in the long term.
Experienced investors in the stock market have known this for a long time. If you are disciplined in your investment strategies, you will, in the long run, outperform the markets. Most of the people who lose a lot of money are those who invest emotionally and delusionally. Their thought process seems to be, “I want it to be so, therefore it must be so and it will continue to be so.” They never include self-discipline in their financial strategy.
The importance of self-discipline is as constant in real estate as it is in stock investments. In the run-up to our current crisis, those investors and homeowners who borrowed on their properties with discipline are generally doing okay now, and will emerge as winners in the long run. On the other hand, those who borrowed up the maximum on all their investments are in big trouble now. They may have to sell some of their assets with few good buyers around.
Let’s look at a few ways to help you build your self-discipline:
Be clear about your underlying investment principles. What are the fundamentals that you want to stick to, no matter what? Make sure that your guidelines match your strengths, passions and risk-taking temperament. If you are going to stick to your plan, it has to be something that you can achieve and something that makes achievement truly exciting to you.
Write your plan down on paper. What will you gain if you follow through long term? And what will you lose if you don’t follow through? Make sure that the potential benefits really excite you, and that the possible loses really upset you. We are all motivated by pleasure and pain, and when you have the promise and the risk of both, your chances of success are exponentially increased.
Share your plan with others. When you are the only one who knows what you are after, it’s easier to come up with excuses for why it can’t be attained. If someone else knows what you are aiming for, you are more likely to work at it.
Remind yourself of your goals on a daily basis. Self-discipline is not easy — which is why most people are not good at it. But reminding yourself of why you’re making the effort helps you stay focused when the going gets tough.
Keep your mind on the big picture. You may well find others who are not self-disciplined yet who nonetheless seem to be doing just fine. But as you know, you are working on a long-term plan. At the end of the day, the same choices that bring some people quick success are decisions that are likely to take them down when the market changes.
When you look back at the last few downturns in the economy, it is clear that they could have been minimized had people used more self-discipline in their investment decisions. In the late 1990s, when internet stocks were skyrocketing, most people knew that the boom couldn’t last indefinitely. It was beyond logic to keep pushing those stocks higher and higher. And the same happened over the last few years in the real estate market. We all knew that the prices couldn’t go up forever, but since there was little self-discipline, people kept borrowing and the banks kept approving those loans.
When things seem to be going well, we don’t want to consider the possibility that they will change for the worse. And then when they do, we look back and say, “How could we not see this coming? And what can we learn?”
The only answer is: develop self-discipline!
