makes no difference whether you look for stock market bargains like
Warren Buffett, scour the markets for undervalued takeover targets
like Carl Icahn, trade currency futures like George Soros, use technical
analysis, follow “candlestick” charts, buy real estate,
buy on dips or buy on breakouts, use a computerized trading system
— or just want to salt money away safely for a rainy day.
Adopt these habits and your investment returns will soar.
Applying the right mental habits can make the difference
between success and failure in anything you do. But the mental strategies
of Master Investors are fairly complex. So let’s first look
at a simpler example of mental habits.
Johnny Can’t Spell
Some people are poor spellers. They exasperate
their teachers because nothing the teacher does makes any difference
to their ability to spell.
So teachers assume the students aren’t too
bright, even when they display better-than-average intelligence
at other tasks — as many do.
The problem isn’t a lack of intelligence:
it’s the mental strategies poor spellers use.
Good spellers call up the word they want to spell
from memory and visualize it. They write the word down
by “copying” it from memory. This happens so fast that
good spellers are seldom aware of doing it. As with most people
who are expert at something, they generally can’t explain
what they do that makes their success possible...even inevitable.
By contrast, poor spellers spell words by the way
they sound. That strategy doesn’t work very well
The solution is to teach poor spellers to adopt
the mental habits of good spellers. As soon as they learn to “look”
for the word they want to spell instead of “hearing”
it, their spelling problem disappears.
I was amazed the first time I showed a poor speller
this strategy. The man, a brilliant writer, had gotten a string
of Bs in school all with the comment: “You’d have gotten
an A if only you’d learn how to spell!”
In less than five minutes, he was spelling words
like “antidisestablishmentarian-ism,” “rhetoric”
and “rhythm,” which had confounded him all his life.
He already knew what they looked like; he just didn’t know
that he had to look!*
Such is the power of mental habits.
Structure of Mental Habits
A habit is a learned response that has become automatic
through repetition. Once ingrained, the mental processes by which
a habit operates are primarily subconscious.
This is clearly true of the good speller: he is
completely unaware of how he spells a word correctly. He just “knows”
that it’s right.
But doesn’t most of what the successful investor
does take place at the conscious level? Aren’t reading annual
reports, analyzing balance sheets, even detecting patterns in charts
of stock or commodity prices conscious activities?
To an extent, yes. But consciousness is only the
tip of the mental iceberg. Behind every conscious thought, decision
or action is a complex array of subconscious mental processes —
not to mention hidden beliefs and emotions that can sabotage even
the most determined person.
For example, if someone’s been told “You
can’t spell” over and over again, that belief can become
part of his identity. He can understand the good speller’s
strategy, and with an instructor’s guidance can even replicate
the good speller’s results. But left to his own devices, he
quickly reverts to his old mental pattern.
Only by changing the belief that “I am a
poor speller” can he adopt the good speller’s mental
Another, though usually minor, stumbling block
is the lack of an associated skill. A tiny percentage of people
simply can’t create an internal mental image: they have to
be taught how to visualize before they can become good spellers.
Four elements are needed to sustain a mental habit:
1. a belief that drives your behavior;
2. a mental strategy — a series of internal conscious and
3. a sustaining emotion; and
4. associated skills.
Let’s apply this structure to analyze another process, one
that’s simpler than the habits of highly successful investors
but more complex than the “Spelling Strategy.”
Imagine we’re at a party and we see two men
eyeing the same attractive woman. As we watch, we notice that the
first man starts to walk towards her but then stops, turns, heads
over to the bar, and spends the rest of the evening being an increasingly
drunken wallflower. A few moments later, we see the second man walk
over to the woman and begin talking with her.
A while later we become aware that the second man
seems to be talking to just about everybody at the party. Eventually,
he comes over to us and initiates a conversation. We conclude that
he’s a really nice guy, but when we think about it later we
realize he didn’t say very much at all: we did most of the
We all know people like this, who can walk up to
a total stranger and in a few minutes be chatting away like they’re
lifelong friends. I call them “IceBreakers,” and behind
their behavior is the mental habits they practice:
1. Belief: They believe
that everybody is interesting.
2. Mental Strategy: They hear their own
voice inside their head saying: “Isn’t he/she an interesting
3. Sustaining Emotion: They feel curious,
even excited, at the prospect of meeting somebody new. They feel
good about themselves, and their attention is focused externally.
(If they’re preoccupied with some problem or feeling depressed
about something — internally focused — they won’t
be “in the mood” for conversation.)
4. Associated Skills: They establish rapport
by making eye contact and smiling with their eyes. When they have
a sense of rapport, they initiate a conversation with some innocuous
remark, and maintain it by listening rather than talking, keeping
eye contact and focusing their attention on the person (giving that
person a sense of importance), and by wondering what’s going
on in this person’s mind.
You can get a taste of how this works by trying
it out for yourself. Just imagine (if you don’t already believe
it) that you consider all people are interesting; and hear
your own voice saying, “Isn’t he/she an interesting
person.” Then look around, and if you’re alone imagine
that you’re in the middle of a crowd. You should be able to
feel the difference (if only for a moment).
The Wallflower, who ended up at the bar, had a
very different mental strategy. After an initial flash of interest,
he “ran a movie” in his head of all the times he had
been hurt in a relationship, felt lousy — and went to have
a beer to drown his sorrows. His emotional reaction was the expression
of a subconscious, self-limiting belief that “I’m not
good enough,” or “I always get hurt in relationships.”
Another pattern when meeting someone new is to
continually wonder: “Is this person interesting (to
me)?” This “Self-Centered” approach reflects
a belief that only some people are interesting. And it
has very different behavioral consequences.
Here’s a chart of these three different mental
The Wallflower or the Self-Centered
person can easily learn all the IceBreaker’s skills: how to
establish rapport, how to “smile with your eyes,” how
to be a good listener and so on. He can even create an internal
voice saying, “Isn’t he/she an interesting person.”
But what happens when the Wallflower actually tries
to initiate a conversation with a complete stranger? His self-limiting
beliefs override his conscious attempt to do something different
— and nothing happens.
In the same way, an investor who subconsciously
believes that “I don’t deserve to make money”
or “I’m a loser” cannot succeed in the markets
no matter how many skills he learns or how hard he tries.
There are similar kinds of beliefs that lie behind
many investors’ losses, beliefs that I call The Seven
Deadly Investment Sins...
Spelling Strategy was developed by Robert Dilts, co-developer of
the branch of applied psychology known as Neuro-Linguistic Programming.