It's almost the time of year where we think about what we want to achieve next year, what resolutions we want to make.
Many people will make fitness resolutions and fail within a couple of months, yours truly included!
My three resolutions don't take physical effort, so there's a good chance I'll succeed. Plus, they're meant to last forever, a permanent change of mindset is much more likely to succeed.
Never underestimate compounding
Compounding was described by Albert Einstein as the eighth wonder of the world, for good reason.
It's easy to understand when a share price or an earnings per share increases by 10% in a year. It gets much harder to visualise how much growth compounding creates if a share price grows 10% in year one, then grows 12% in year two, 8% in year three and so on.
That's why shares like Challenger Ltd (ASX: CGF) and Ramsay Health Care Limited (ASX: RHC) are such powerful long-term investments, they steadily grow year after year.
I'm often surprised by the power of compounding, even though I write about shares every day.
Thinking about the power of compounding gives me more confidence investing in shares.
Be pickier about value
It's impossible to know what share prices will do in the near-future, we have no control over the market.
However, we do have control over the price that we pay for the shares we buy.
You can play all the mind games you want to justify buying a share at a certain price. If you really want a share in your portfolio, then you may end up overpaying for it.
I overpaid when I invested in Greencross Limited (ASX: GXL) shares a couple of years ago. The share price had fallen and Greencross is a good business, but I needed to be more careful about the price I invested at. I haven't made the same mistake for a while now, though that could change.
Keep some cash
The Australian and global share markets have been on a bull run for nearly a decade.
It is utterly inconceivable that there won't be another sizeable crash in the future. Therefore, each week we get closer to the next drop.
There's nothing wrong with this reality. Our share market is at its current level despite all the wars, recessions and the GFC. It's just something to keep in the back of one's mind.
It's probably a good idea to keep more cash on hand just in-case. That cash may be needed for personal uses, such as reduced income or losing a job. It would also be handy to buy some shares at a discounted price.
Foolish takeaway
Those are my three resolutions for the next year and I intend to stick to them.
