Emotional Investing

Emotional Investing

I’ve heard it over and over...

"If you would have bought it right here, then you would have made X…"

Then there’s...

"Well, with our standard deviation you would have bought this until you reached 40 points up, then you would sell it right here for a 100X gain."

Let’s get something straight, a formula for success is never that straight forward. A good strategy must account for the emotion of the buy and sell.

Yes, the best investors learn to deal with their emotions. But when you’re selling why your investment strategy is the best, your standard deviation better account for the emotional turmoil an investor goes through when buying and selling.

Your cheat sheet is great when looking at historical growth charts. But to really play a market, it takes more than a 3x5 index card of one-line quotes.

Here are a few things that have helped us:

  • Buy what you understand.
  • Envision holding this investment for the rest of your life and passing it on to your kids (if it’s that good, then you can always exit earlier if it gets better).
  • Always have a safety net (Plan B, worst case scenario, trailing stop, etc).
  • Focus on the relationship behind the killer investment. Who’s the team? And are they dedicated the their vision?

(photo via un photo)