biofeedback, black box, fear and greed, home bias investing, investment checklists, literature, Nudge, portfolio allocation, The Checklist Manifesto, trading, value investing, value-trap
Great traders don’t necessarily have to be that smart, but mastery of their emotions – specifically, fear & greed – is absolutely essential. The same is equally true of great investors, except it just happens in slow(er) motion… But most people end up choosing investing over trading. Which is pretty fortunate – the trading gods delight in seeing meticulous logic & analysis abruptly savaged by fear & greed.
Many would-be traders never recognize this, and fail accordingly. Others grasp it, but remain trapped in a never-ending struggle. Only the brave few ever learn to fully master these emotions. Investing, on the other hand, seduces you with the luxury of time & positive long-term equity market trends. Which often makes it far more difficult to recognize the corrosive impact of fear & greed on your portfolio returns. The fact many of us shy away from any kind of critical self-examination doesn’t help either. But there are two solutions available to us:
The first is reading. In my last post, I argued for an important alternative to most investors’ non-fiction diet – literature, and lots of it. The great novels, plays & poetry are windows into the hearts & minds of other people – and in turn, yourself. Learning to actually recognize emotions like fear & greed in yourself, and their potentially disastrous impact on your investing, is the first & likely most difficult part of the battle you face.
Now, I didn’t cover the second solution – how to actually conquer those emotions. Because unfortunately, when it comes to that challenge, we are all truly alone…