If you’re an investor you know all too well that you have to learn to manage your emotions. Easier said than done. But there are some things you can do to help.
There is a good correlation between the number of investment decisions someone has to make and the level of stress or emotion. It is important to note that the number of decisions is not simply the number of buy and sell transactions. Think about these: “The market is down 250 points. Do I Hold? Do I Sell? Do I Buy on the dip?” or “Now the market is down 400 points. Do I get out now or ride it out? I hate to take the loss!”.
Every time you decide, not to buy or not to sell, you’ve make an investment decision.
The more difficult the decision the heavier the emotional toll. Difficult decisions carry an emotional toll whether they involve investing or anything else.
One way to reduce the emotional toll of investing is to try to put yourself in a position where you don’t have to make as many difficult decisions. Sounds easy, but how do you do it in practice?
As the famous philosopher, Yogi Berra, once said: “In theory, there is no difference between theory and practice. But in practice, there is.”
Sometimes it’s helpful to look outside of investing to see how this concept can be applied.
The Oakland Raiders professional football team was looking for a new coach and owner Al Davis offered the position to, then 34 year old, John Madden. Madden knew that Davis was well known to be a tough, very involved owner who often second guessed his head coaches.
So John told Al that he would take the job under one condition. Davis, a man used to setting conditions, not agreeing to them, decided to at least listen. John then said that both he and Al had to agree on the following: Whenever Oakland was in field goal range and it was 4th down, they would always kick the field goal. Even if it was fourth and inches for the first down. Unless it was the last play of the game.
Al thought it over and in the quiet and unemotional setting of his office, he agreed to the condition. I’m sure there were some occasions where Al second guessed that decision, but over the years it eliminated hundreds of gut wrenching decisions and stress between owner and coach.
And under Madden the Raiders won 76.3% of their games including Super Bowl XI.
There’s a strategy that worked.
So now, in the quiet of your office or your kitchen table, see if you can make a non-emotional decision to adopt a strategy that could reduce the number of difficult decisions that you, as an investor, face routinely. Maybe opting for a service that offers selective Buy signals; timely Sell signals; conservative Stops and a formula to determine prudent position sizes, might be worth further investigation.