Editor's Note: Arne Alsin's column runs exclusively on RealMoney.com; this is a special free look at his column. For a free trial subscription to RealMoney.com, click here. This article was published Feb. 14 on RealMoney.
Are you a mature investor? Do you consider yourself a grown-up when it comes to handling market gyrations and the ebb and flow of your portfolio?
Age doesn't correlate with investing maturity. Individuals who are 20, 50 or 80 years old can be either mature or immature investors; it all depends on how they approach the market.
I don't expect an easy stock market cycle for at least a few years. Mature investors have a definable edge over their less-sophisticated counterparts in a difficult market. So take a look at my seven attributes of mature investing below and see if you qualify as grown-up:
1. Mature investors aren't interested in instant gratification.
If you spend any time with children, you know that when you say "tomorrow" or "next week," you might as well be saying "next year." Waiting for something good is almost impossible when you're immature.
Mature investors know that if an analysis is done well and a wonderful business is acquired at a hefty discount to the underlying business value, it doesn't matter what the stock market says it's worth tomorrow, next week or even next year.
2. Mature investors don't fret about current quotes.
While the market is reasonably efficient as a sieve of value over the long haul, it's woefully inefficient in the short term. Don't make investing more complicated than it needs to be. Prices fluctuate a lot more than fundamentals. So there's no reason to be glued to a quote screen watching these gyrations, especially when you're watching quotes of companies that you intend to hold for a while.
3. Mature investors don't speculate.
Capital is too hard to acquire in the first place to risk it by speculating. Hit three 25% winners in a row, lose 50% on your next one, and your capital is below where you started. Net of taxes, inflation, commissions, slippage and, in my opinion, the psychological cost, speculation isn't a game for winners.
4. Mature investors have a reasonable game plan that they stay with.
I have to qualify this with the word "reasonable" because there are plenty of game plans that aren't reasonable or, in my view, mature. Any number of strategies out there don't represent mature investing, including chasing IPOs, investing in the latest hot sector and going for broke (which is usually the end result) in the options and futures markets.
5. Mature investors have realistic expectations.
Investors' expectations have expanded commensurate with financial asset inflation over the past 20 years. Mature investors understand that the stock market is not going to go up another 12-fold over the next couple of decades and that a single-digit average annual gain is a reasonable expectation.
6. Mature investors aren't stressed.
One quality of mature investors is that they are relaxed. Too many investors feel they need to "do something" in the midst of a decline, especially during a panic. Right after Sept. 11, many investors felt they had to move into cash, and they sold quality companies at low prices, only to see them rebound (and then some) in the ensuing months.
7. Mature investors "understand the game."
Given a roomful of people participating in a game of skill, the eventual result will be a handful of winners at most. What separates the winners from the losers? In a game of skill, the answer is simple enough: The winners understand the game better than the losers.
So what's this stock market game all about? I've tried to render my opinion in my cadre of columns for
. In a nutshell, though, I've
already stated my view in a previous column:
At the end of the day, this game isn't about price action or perceptions of safety or liquidity -- it's about value. In fact, over the long haul, it's exclusively about value.
To the extent you can accurately value companies, everything else follows: buy undervalued companies, sell at or near fair value, and avoid overvalued companies.
Arne Alsin is the founder and principal of Alsin Capital Management, an Oregon-based investment advisor specializing in turnaround situations. At time of publication, Alsin and/or ACM had no positions in any of the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Alsin appreciates your feedback and invites you to send it to