History and Your Emotions

Although history can be used as a guide to help investors get more clarity about the future, it is still important to keep your emotions in check and not let them interfere with your investment decision making process. Let’s face it, no matter what the past says about the future it cannot be predicted by past events or any economic or market forecasts. Some forecasts are better than others but, in the end, they are all best guest estimates regarding future events. Although no method is superior, we believe that using history as your guide to make reasonable assumptions about future events is best. Currently, market pundits are talking about market bottoms, when is the best time to invest in a market downturn, and when the markets will rebound. Unfortunately, no one knows and that is when an investor’s emotions start to take a toll on the investment decision making process.

So, what should you do? As an investor the best thing to do is to have a system in place that clearly defines your investment process based in terms of when to buy, sell, and rebalance your portfolio. Your investment procedures should be well thought out and backed by research which should give you the confidence to stick to the process no matter how much the market has been declining or rising in value. Should you be buying in the current market, or should you wait? Once you have determined the amount of money available to invest in then there is no better time than the present.

The first decision is to determine what stocks to buy and how many to hold in your portfolio which should be supported by your research. At Investoristics, we believe that a highly focused group of stocks will always do better than the market averages over time with lower risks and significantly higher returns. Research supports that our approach is highly effective over the long term and outperforms all major indices over the last 20 years.

Equally as important is the decision when to sell certain stocks in your portfolio when they have either gained or lost value during the holding period. One part of winning big is not to lose big and your strategy should be designed to exit positions when they are no longer performing to expectations. Whether you choose to take profits at a certain point or only limit your losses during a holding period is your choice but should be supported by research. We tend to focus on limiting losses rather than taking profits during a particular holding period as our rebalance cycle eliminates the need to try to determine when a particular stock has achieved its high during the period.

Unfortunately, too many investors do not have an adequate investment process in place when investing in the financial markets which leads to significant market anxiety particularly during turbulent markets. The lack of a plan leads to irrational decisions resulting from quick emotional reactions to the latest unreliable market forecast. Do you have a well thought out investment process? If not, consider joining the “Collective” and let us do the work for you while you enjoy higher returns and less stress.