Five Things To Keep In Your Personal Investment Journal

It's said the best way to learn is from your mistakes. Investing is no exception. To avoid past failures and to replicate your wins, you’ll need to track and understand the reasons – and motivation — behind your investment choices.

Unfortunately, while many of us regret certain investment decisions, we don't always have the best recollection or insight when it comes to understanding why we made them. To combat this shortcoming, take a page from the behavioral finance playbook and keep a personal investment journal.

By recording the details, you'll be better equipped to spot patterns, examine the effectiveness of your decisions, and learn from mistakes.

Your personal investment journal should include details about your short- and long-term investing goals; research, tips and guidance from experts; and industry trends and market performance. You should also make a list of the investment choices you are considering. Finally, you should track the performance of each stock, bond and mutual fund that you hold.

Learn to Recognize Good Financial Behavior

Behavioral economics expert Daniel Kahneman explains the way people make investment decisions as having "two minds," System one is the "intuitive mind,” which makes rapid, snap-judgment decisions. System two is the "reflective mind," which is a slower, more analytical approach requiring conscious effort.

In an interview with the American Psychology Association, Kahneman, a 2002 recipient of the Nobel Prize in Economic Sciences, referred to the brain as "...a machine for jumping to conclusions." He uses the acronym "WYSIATI" --"What you see is all there is" -- to illustrate his research on behavioral finance. The "WYSIATI" factor perfectly illustrates why keeping an investment journal is so important. Keeping a detailed record of your investments allows you to "see" how you make decisions more clearly.

Basically, you have a lot to learn from yourself. The numbers will give you the results behind portfolio choices, but not the psychology. An investment journal is a way to bridge the gap between the practical details of investment decisions and the psychological motivators behind them. In other words, it will help you keep the "intuitive" and "reflective” parts of your mind in balance.

Decide on a Format

If you've kept a journal in the past for fitness tracking or to develop a sustainable, daily habit, you know an easy-to-use format is key. Your journal should be easily accessible, in a medium you're comfortable with, and equipped to handle the information it's meant to contain.

You'll be recording a lot of information here, so give your financial mind plenty of room to unfurl.

The type of information you'll want to compile will further influence the proper medium for your journal. And don't feel the need to stick to a traditional format if it seems too confining. Some unconventional tools could work well for this. Evernote, for example, lets you clip snippets of articles, charts and annotate them, all in one central digital repository.

No problem if you're strictly a pencil-to-paper person — a good old-fashioned notebook can work just as well.

A Treasure Trove of Insightful Information

Think of your investment journal as a personal blog to yourself — filled with nuggets of valuable information.

Record the methods, skills, and tools you used to come to your decisions.

Try to included detailed information for each the following five categories.

  • Write down your investment goals, including where you see yourself financially in six months, a year, even 10 years down the road.
  • If you enjoyed a particularly insightful article on investing, perhaps from someone like legendary investor Warren Buffett, include some of that information in your journal. Add in research material and other tips from analysts and market observers.
  • Keep up-to-date on industry trends and market performance. Track the performance of key market indexes, including the Dow Jones industrial average and the Standard & Poor’s 500 index. Track the performance of leading market groups, including technology and consumer products companies.
  • Maintain a “wish list” of each investment you are considering. For example, if you’re thinking about buying some shares of Apple Inc. (AAPL), read up on the company’s financial performance and write down the company’s profits and revenue over the past three to five years. Track Apple’s stock over a one-, three- and five-year period. Check to see how long the company’s top executives have been in their jobs.
  • After you’ve made your investment choices, keep track of why you made your decisions and what you were trying to achieve. Check in periodically to monitor and reevaluate your investments. Determine if you need to make adjustments to your plan. This way you’ll be sure you’re making objective, non-emotional decisions.

Revisiting your investment choices will give you clarity--and a reality check--on the psychological process behind your decisions.

It takes a lot of time and patience to develop an individualized, functional investment journal. Persistence, like in most things, is essential. Stick with it, learn as you go, and your return on investment will be huge.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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