Thoughts on Investing

Thoughts on Investing---from Barry Ridholtz

Investor Mistake #3: You are your own worst enemy

            You Are Your Own Worst Enemy: Your emotional reactions to market events is yet another detriment to your results. Typically described as Fear & Greed, it is more complex than that. But for starters, Fear & Greed does enough damage.

Do you get excited about hot new companies? Do you love chatting about stocks at cocktail parties? On the other hand, do your holdings keep you up at night? Are there periods where you cannot bear to even open your monthly statements?

These all suggest that you, like most humans, are an emotional investor. This manifests itself in two ways: With heavy buying of equities at the regardless of valuation as excitement builds near the top of the cycle (most public ownership of equities occurs this way); secondly, with panicked selling, typically near major inflection points.

You can take steps to protect yourself from, well, yourself. Predetermine your exits and stick with it. Make decisions while objective, before emotional trouble hits. Set up a Mad Money account with a less than 5% of your capital. This will allow you to indulge “your  inner Cramer.” If it works out, that’s great — maybe you are the next Steve Cohen. If it’s a debacle (and the odds are it will be), it’s a terrific lesson that will serve to remind you that trading in and out of stocks like a deranged hedge fund manager is not your forte. Be thankful it wasn’t most of your retirement assets that you lost.

Your emotions are often the enemy of your financial well-being. Learn how to keep them in check, or to protect yourself from them, to become a better investor.

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            In addition, some concerning news about how ETF’s are being impacted by the dramatic sell off (medium):

            http://www.zerohedge.com/node/475518