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The following guest post is courtesy of Jeff Broth, a business writer and personal finance advisor. Consulting for SMB owners and entrepreneurs for more than 7 years.
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While running a business and investing in the stock market are two very different endeavors, there are also a few parallel principles that apply to both. Here are four lessons that investing in the stock market can teach you about running your own business.
You Will Have Failures
Not every stock you invest in is going to be a big success. You will make investments that will lose you money. And, when you’re running a business, there will be months (or even years) where you’ll lose money.
As one writer for CNN Money said, “Losing money is a learning experience, not a reason to crawl back under the bed sheets. Chances are you’re going to lose money on a stock at some point in the future. The idea is to take what you’ve learned and not make the same blatant mistakes again.”
Whether it’s in stocks or in business, take your failures as an opportunity to learn important lessons and make better decisions in the future.
Knowledge Is Power
The best thing you can do in business and in stocks is to arm yourself with knowledge. While being well-read is never going to guarantee your success, it certainly doesn’t hurt. If you’re serious about your business or your investments, then you should always be seeking additional knowledge in your industry.
For stocks, you have to take the things you read with a grain of salt. The market is nearly impossible to predict, but learning more about the industry in which you are investing can be extremely helpful in guiding your investment choices.
When it comes to business, learning all you can about your business can make a huge difference in your company’s success. Learning to recognize business trends will help you stay competitive in your industry. Studying business models will provide you with new ideas on how to run your company.
To quote Benjamin Franklin: “An investment in knowledge pays the best interest.” All in all, continuous learning will help you in both investing and running a business.
Separate Emotions from Logic
Emotional trading in the stock market is a great way to lose your money quickly. Choosing to invest in a company because you have some sort of emotional connection or personal history with the company is not the way to go. You must always take a logical approach to your investments, looking at company history and finances, to determine if it is a wise investment. Similarly, panicking and selling your stocks when there is a dip in the market can be a very poor choice.
In the business world as well, emotion can be a serious detriment to your company’s growth. Hiring and firing employees based on emotional responses, or dropping clients due to personal miffs, can slowly drag your company down. While there is something to be said for “going with your gut,” you should always ensure your logic is engaged in business decisions.
As entrepreneur and multi-millionaire Sam Ovens once said, “Entrepreneurship and success is more of a battle in your own mind than it is in anything else.” The internal battle between logic and emotion can have an enormous impact on your future success.
Develop a Long-Term Perspective
A hit-and-run perspective in investing is not going to lead to long-term success. When you’re looking to invest in the stock market, you should choose to invest in something where you can settle in for the long haul. Make a decision, and ride it out. According to investment guru and billionaire Warren Buffet, “No matter how great the talent or efforts, some things just take time.”
The same applies to business. Don’t jump from one business model to another. Don’t frantically switch to selling a new product or service when your initial product doesn’t immediately sell out. Settle in for the long haul, ride through the initial tough times, and you’ll likely reap a reward in the end.
These four important lessons can help guide you in both business and investing, and help you to make smarter decisions.