The Balancing Act: How Confidence Shapes Success in Investing

The right balance wins—too little holds you back, too much leads to mistakes.

I have always been a big sports fan. What has always fascinated me the most are not the tactical aspects, but how the mental aspects can either push a team above its capabilities or keep it below them.

After all, soccer is won with the head and played with the feet. What makes the difference in a game is more often than not the mental attitude you bring to the game. It's the little things that we as spectators often don't see. Those things are hard to force. You can try to practice them, but more often than not they are a result of the momentum you are experiencing.

When you are coming off a win, your confidence is high. You go out there with a lot of confidence. But it is a balancing act, too much confidence, and you become complacent, thinking you will win no matter what.

When you come out of a losing game, your confidence is down, despite all your past successes. In investing, we also have the tactical aspects: how to analyze a business model, your investment strategy, portfolio management, and many other things that you can read 100 books about.

However, as in sports, this is only one aspect of the game. The other aspect is your mental attitude. Especially when you are in Microcaps, it can feel extremely lonely.

You cannot rely on analysts reports, seeking alpha articles or follow super investors like Buffett. You'll often find yourself alone in a stock. You have to do the work yourself — and while that may not be a problem from an intellectual standpoint, it can very well be from an emotional standpoint.

You cannot borrow conviction, you have to trust your own analysis. This is easier in a bull market. Two out of three times, your decision will be rewarded by the market going higher in the next few days, but it gets harder when the market is not on your side in the short term.

You feel like you are the only one who is bullish on the stock, but now the market seems to disagree with you. Are you going to give up, or do you have faith in your work? The answer is not easy. And just as in sports, confidence plays a crucial role.

When I first started investing in Microcaps, I relied a lot on other people's confidence to follow the stocks they were bullish on. And that made sense because I had no winners of my own, so I had no confidence in my own abilities.

In fact, I remember the first time I came across an idea where I could not rely on any other investor because there was no MCC write-up, no X threads, nothing. I passed on the stock because I just did not trust myself that much. In retrospect, my analysis was correct and the stock more than doubled.

It was not until I had my first winners that I started to trust my own analysis. I saw that it can work when it feels like I am the only one bullish on a stock.

Last year, however, it was particularly easy for me to build that confidence, as I benefited from a bull market (and luck) in which all of my decisions were rewarded with a rise in the stock price shortly thereafter. It was easy to build confidence.

Which, of course, led to overconfidence and overestimation of my abilities. Forgetting that stocks do not automatically go up after you buy them.

One of the scariest situations a stock picker can find himself in is to be in an undiscovered stock and be down on that stock. Not only do you have no one to echo your bullish thesis, but the market is telling you that you are wrong.

What will you do? Confess that you are, in fact, wrong? Double down? And believe that you are right, and the market is wrong? Most likely, your action will depend less on the stock and more on your own confidence in yourself.

You cannot have big winners if you are not confident, but you can also go broke if you are overconfident. It is a balancing act.

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Disclaimer: The information contained in this publication is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. The opinions expressed in such publications are those of the publisher and are subject to change without notice.