Cold Truth About Emotional Investing

Consider an excerpt:

WSJ: What do you mean by emotional finance?

PROF. TUCKETT: What we try to do in emotional finance is start with the fact that the future is unknowable. The key thing about uncertainty is that it inevitably generates feelings. Because it matters to you, because your money’s on the line, so to speak, you’re bound to feel emotionally engaged.

WSJ: Some people think pros are more rational than individual investors.

PROF. TAFFLER: Although most of the fund managers we interviewed saw part of their particular competitive advantage as remaining, as they described it, unemotional or rational, in practice they were just as emotional as anyone else when they started to talk about the stocks they had invested in. There were lots of examples where they referred to them almost as if they were lovers.

If you’re entering into an emotional relationship with a stock, an asset or a company that can let you down, this leads to anxiety, which is often not consciously acknowledged. But it’s there, bubbling beneath the surface.


10 Trading -Wisdom Quotes

  1. Ignore hearsay and don’t let your ego get the better of you.

“I learned that an opinion isn’t worth that much. It is more important to listen to the market.”
“Most traders who fail have large egos and can’t admit that they are wrong. Even those who are willing to admit that they are wrong early in their career can’t admit it later on! Also, some traders fail because they are too worried about losing. I’m not afraid to lose. When you start being afraid to lose, you’re finished.”

Brian Gelber

  1. Timing is paramount.

“I don’t lose much on trades, because I wait for the exact right moment.”

Mark Weinstein

  1. Accept full responsibility for your actions and don’t fall prey to self-sabotage.

“Many people actually want to lose on a subconscious level.”

“The realization that you are responsible for your results is the key to successful investing. Winners
know they are responsible for their results; losers think they are not.”

Dr. Van K. Tharp (more…)

John Bogle, founder of Vanguard, has died

Bogle founded Vanguard in 1975 and revolutionised low cost fund management, he has been called the father of the index fund.

  • Dow Jones reporting Mr. Bogle has passed away
  • Bogle was 89
  • Vanguard has more than 5tln USD under management
Warren Buffet remarked on Bogle :
  • says he is the person who has done the most for American investors
  • he helped millions of investors realize far better returns on their savings than they otherwise would have earned
Bogle had a heart transplant back in 1996

Lessons From Dorsey Wright’s Thomas Dorsey

“Investment philosophy is really about temperament, not raw intellect. In fact, proper temperament will beat high IQ all day.” – Michael Mauboussin

Last week the Wall Street Journal ran a profile of Thomas Dorsey, the president of Dorsey Wright & Associates, an investment firm that focuses on momentum and trend following strategies.

I had a few people send me this story asking for my thoughts.

Early in my career, when I thought I knew everything, it was easy to dismiss an investment philosophy that differed from my own because I thought I had it all figured out. (more…)

12 Market Wisdoms From Gerald Loeb

1. The most important single factor in shaping security markets is public psychology.

2. To make money in the stock market you either have to be ahead of the crowd or very sure they are going in the same direction for some time to come.

3. Accepting losses is the most important single investment device to insure safety of capital.

4. The difference between the investor who year in and year out procures for himself a final net profit, and the one who is usually in the red, is not entirely a question of superior selection of stocks or superior timing. Rather, it is also a case of knowing how to capitalize successes and curtail failures.

5. One useful fact to remember is that the most important indications are made in the early stages of a broad market move. Nine times out of ten the leaders of an advance are the stocks that make new highs ahead of the averages. (more…)

A common trait you'll see among the world's best investors

In 1968, a self-described “gun-slinging nitwit,” fresh out of Harvard Business School, Grantham played the go-go market at its peak. By 1970, he had lost all of his money. “I like to say I got wiped out before anyone else knew the bear market started,” Grantham recalled years later.

Think about that. The man who today relentlessly warns of risk began his investing career by losing all of his money and then sitting through a 12-year bear market.

What lasting impact did this have on his outlook? How did this experience influence his opinion of markets today?

Likely, a lot.

People like to assume they can think objectively. But you and I are just a product of the experiences we’ve had in life. And most of those experiences were random and out of our control. Would Grantham hold his bearish stance if, by luck, he began his investing career at the start of a bull market? Or doubled his money his first year out of college, rather than losing it all?

There’s evidence to suggest the answer is “no.” (more…)

How to Win the Loser’s Game

Most of what we see and hear about how to invest comes from either the fund industry or the financial media – both of which have their own agendas. This landmark documentary is an attempt to redress the balance.

Nine months in the making, How to Win the Loser’s Game aims to provide ordinary investors with the information they need to achieve their investment goals. It includes contributions from some of the biggest names and brightest minds in the investing world.

It’s being released in ten weekly, stand-alone parts, followed by the full-length, 80-minute film. Please share these videos with family, friends and colleagues, and help us to build a better, fairer and more transparent investment industry for all.

Steven Drobny, Inside the House of Money (Book Review )

If you haven’t read Steven Drobny’s Inside the House of Money: Top Hedge Fund Traders on Profiting in the Global Markets, newly revised and updated (Wiley, 2014) you should immediately add it to your “to do” list. It doesn’t matter whether you’re a global macro trader or not. I’m not, and yet it’s one of the very few books I keep returning to and learning from.

Originally published in 2006, the book is a collection of twelve interviews with top global macro practitioners. Although times have changed—the interviews were conducted before the financial meltdown and since then global macro has gone mainstream—the book remains a font of trading wisdom.

Few of the interviewees are household names; notable exceptions are Jim Rogers and Peter Thiel, and Thiel has since closed down his fund. The other named traders (one is anonymous) are Jim Leitner, Christian Siva-Jothy, John Porter, Sushil Wadhwani, Yra Harris, Dwight Anderson, Scott Bessent, Marko Dimitrijevic, and David Gorton and Rob Standing.

It’s, of course, impossible to summarize this book, which is one reason it’s so valuable. But, just to give a bit of its flavor, here are a couple of excerpts. (more…)

Warren Buffett’s Biggest Losses

Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market.” – Warren Buffett

A good starting point to gauge investment performance is to compare your results against a simple buy and hold portfolio.

While there are certainly ways to improve the performance of buy and hold, there are many more ways to make it much worse.  You have to determine if the effort and actions you take with your portfolio strategy are worth it when compared to this simple (but not easy) alternative.

Investors generally fare much worse than buy and hold so this is an important decision for the average investor to consider.

When you hear about the average long-term gains of 9-10% in the stock market you must remember that those returns contain every single type of market environment. That means high valuations, low valuations, high interest rates, low interest rates, high inflation, low inflation, bubbles, recessions, booms, busts and everything in-between.

It’s an all-inclusive number that contains the good and the bad. (more…)

A Short Note

“Jack Bogle likes “cheap” index funds. I don’t know why as they are risky and expensive considering the heavy losses, limited “work” involved and lack of skill. If a firm “manages” $1 trillion and charges “only” 20bp, that is $2 billion PROFIT every year even when returns are negative and retirement plans are wrecked! Lose investors’ hard-earned money? It’s the market’s fault not theirs, right? Get someone to make a list of stocks for a benchmark, buy them, and then endure many years below the high water mark! Who would invest in such a dangerous product as an index fund? No-one with fiduciary responsibility.”

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