How to Stay Disciplined With My Investment Plan

Investment discipline is the single most important determinant of long-term investment success, and it is also the rarest quality among investors. The irony of investing is that the strategy matters far less than the discipline to execute it consistently. A mediocre strategy executed with perfect discipline will outperform a brilliant strategy executed sporadically.

Warren Buffett has said that investing is simple but not easy. The principles -- buy quality businesses at reasonable prices, hold for the long term, ignore market noise -- are straightforward enough that a child could understand them. The difficulty is following these principles when your portfolio is down 30%, when your neighbor is bragging about his meme stock gains, or when every headline predicts economic disaster.

Charlie Munger identifies three qualities that distinguish great investors: patience, discipline, and the ability to be rational when everyone around you is emotional. Notice that intelligence, analytical skill, and market knowledge are not on the list. The greatest investors are not the smartest -- they are the most disciplined.

Benjamin Graham's "intelligent investor" is not someone with a high IQ. It is someone with the emotional discipline to follow a sound process regardless of market conditions. Graham observed that the investor's chief problem -- and even his worst enemy -- is likely to be himself. The market will test your discipline repeatedly: with euphoria that tempts you to overpay, with panic that tempts you to sell at the bottom, and with boredom that tempts you to trade for excitement.

Peter Lynch found that the average investor earned significantly less than the average fund because they bought after strong performance and sold after weak performance. The fund's returns were excellent, but the investors' returns were poor because they lacked the discipline to stay invested through the full cycle.

Ray Dalio approaches discipline systematically: he converts his investment principles into rules, and then follows the rules regardless of his emotional state. His organization, Bridgewater Associates, has generated extraordinary returns by systematizing discipline rather than relying on willpower.

Here is a practical system for maintaining investment discipline:

Your Action Plan

The Bottom Line

The best investment plan is not the one with the highest expected return. It is the one you will actually follow through the inevitable storms.