Systematic Investing – It’s The Process That Counts

It is important to remember first principles and it's the reason I often re-read many books which discusses the basics of investing. Books like Robert Shiller's Irrational Exuberance. 

“I always buy and sell stocks by gut feeling because I think my emotional state is critical to my success as an investor”.

Many investors believe they can invest systematically but it is much harder than it looks. Why? Because your emotions are usually the first responders to stock market events. And that is not systematic investing. 

Having a system can make you less stupid.

Older experienced investors can sometimes appear to make predictions based on their “gut feelings”, but the reality is that they are simply basing their opinion on a lifetime of experience and historical knowledge. As they say, history doesn’t repeat, but it rhymes.

Investors without a systematic approach will make money sometimes, but usually they lose overall because they let emotions like greed and fear dominate their decision making at exactly the wrong time.

What is systematic investing?

Systematic investing is where you have developed a rational stepwise process that contains ground rules and signals for buying and selling stocks.

Systematic investing is important cause its primary aim is to assist you in your decision making process – that is, avoid using your gut instincts.

Success in investing is more about process than outcome – a good process will not mean all your investments are winners. Every investment is a mix of skill and luck. You can control your skill or your process, but you can’t control luck.

However, as Gary Player the golfer said ‘the more I practise, the luckier I get”.

You can view it this way. You can have a good process and get both a good outcome and a bad outcome. Given the enormous number of daily events and transaction in the stock market, you can not realistically expect a good outcome every time regardless of how good you believe your process is. Sometimes unforeseen events, blacks swans or just sheer bad luck can take you out of the game.

Alternately you can have a bad process and have good and bad outcomes. A good outcome can be a result of luck or situations where you get lucky. The important part is acknowledging the role of luck in your investment process.

Many successful investors realise the investment process and rules need not be complex or long winded. However, much of what passes for information is just opinion dressed up as expertise. In most cases, financial industry people and the business media are paid to do and say something.

That can put you off your systematic approach by creating a range of emotions from doubt to fear of missing out.

You can pick an inexperienced investor by determining whether they have a system. Most inexperienced investors buy and sell by hunch/gut feel and get caught in an asset bubble. They lose because they don’t have a process nor an understanding of markets and there tendency to rise too high and fall too low.