Investment decisions should be well researched. Stock trades should follow careful analysis and trades should be executed with a cool hand and cool head.
Does that describe your investing style? Does it describe mine?
No, probably not for many readers and, unfortunately, not always for me.
So, what to do? How can we all be more rational investors?
Well, maybe we can start by comparing the mentality, mind and actions of emotional investors with those of more rational, controlled and analytical investors.
Here’s a short list of what may describe my “emotional investing moments”:
- I invested based upon belief, in brand or company, without deeper research of recent and long term fundamentals
- I acted because I thought or assumed something positive was evolving, without sleeping on the decision to buy or sell and fully considering the basis of the assumption
- I bought or sold stock when I was tired or under stress
- I made a decision without reading financial statements
- I acted based upon news alone
- I acted based upon “eyeballed momentum”
- I followed the herd without a clear understanding of the make up of the stock buying herd
- I acted on perceived versus investigated value of a company
- I bought because I believed a stock would go up
- I sold because I feared that a stock would go down
The fundamental or universal quality of almost every stock purchase or sale that I have made, which buying or selling of shares I would describe as emotional acts, was that my actions were based upon little more than a half-reasoned, half-resarched belief often accompanied by a state of heightened excitement or anxiety.