Mind Over Emotion
Stockscores.com Perspectives for the week ending August 25, 2007
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The human mind is amazingly powerful. It has put a man on the moon, created pieces of silicone that can do billions of calculations a second, organized millions of people to follow red, yellow and green lights and, ironically, found ways to look inside itself. All amazing feats but there remains one thing that is more powerful than even the human mind.
That one thing motivates 100,000 people in a football stadium to cheer at the very same time. It has given one person the ability to kill millions. It gives two people the ability to create one new life. It can push a person to great power while many others languish in despair. Human emotion has had a greater impact on the world than even the products of the human mind.
You might say that they are the same thing, that it is the mind which guides the madness of men just as it creates a new way to power the automobile. I believe they are two very different things, one acts with rational precision while the other works with and unexplainable energy.
For the stock investor, they need to be understood as two very different forces. Your mind is capable of beating the stock market but it is your emotions that will lead you to mistakes.
Two people can have very difficult emotional reactions to the same thing. When faced with a loss in the stock market, one person might feel rage, yelling and screaming and looking for someone, anyone, to blame for the loss. Another might calmly accept the loss and resolve to learn something from it and push forward. One has learned to be angry while the other has learned to be calm. It is our lifelong conditioning that determines our emotional response and changing that conditioning can be a very difficult thing, something that even our powerful mind can not achieve.
Does it matter? Is one right and another response wrong? Any emotional response you have is only wrong if it works against your quest for some achievement. In the game of making money from the stock market, there are responses that are very wrong that must be overcome.
I could give you a trading system that, if followed exactly, should consistently make you money. Its rules may be easy to understand and its application well within your ability. Does this guarantee you would make money from it?
Sadly, the answer is no. There could be nothing wrong with the trading system you are using but if you do not have the right conditioning, if your learned responses to what happens in the stock market work against the rules of the system, you will fail in its application. Two people trading the exact same set of trading rules can have very different results because of their powerful emotions.
The question now is, do you want to let your emotions get the better of you?
The answer for most people is "yes, I do want my emotions to get the better of me." Most people won't admit it, but their actions indicate this is the answer. Most people do not take action against their emotions. When they make a mistake, they do not blame their emotions. They do not work to understand their emotions. They do not make a plan to overcome their emotions.
Traders spend countless hours analyzing the market, using their mind to develop a set of trading rules that work. They spend all of their time working on a plan to beat the market instead of putting in the effort necessary to teach themselves how to follow their plan.
I can not think of a successful trader that I have met who has a sophisticated set of trading rules. Oddly, the best methods for beating the market are simple. What separates the great trader from the loser is the ability to follow the plan. Some successful traders have just been conditioned to have the right emotional responses for making money in the market. Other successful traders have had to work very hard to overcome the lifelong conditioning that works against them in the market.
The point is, stop working so hard on trying to find the miracle trading system that will make you money. Start exploring the emotional reasons for why you suffer losses. Figure out why you sell your winners too early. Determine why you hold your losses so long. Understand why you take bigger risks after you take a loss. Know why you sit and do nothing when market conditions are ripe for profits.
Mastery of self will lead to mastery of the markets. You must also think positively about the market and your goals. It is better to say, "I am going to make money in the market" than it is to say "I am going to avoid losing money in the market." Your focus has to be on the positive outcome if you are to succeed. Golfers know all about this, the player who says "I am not going to hit in the water" often has a worse result than the player who says "I am going to land my ball in the middle of the island green."
Stop analyzing the market and start analyzing yourself. Find the solution to overcoming your mistakes through positive thinking and hard work and give your powerful mind a chance to figure out the right stocks to buy and sell.
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The markets have seen quite a bit of turmoil and I think the uncertainty will continue over the next six weeks at least. This week, I thought I would offer some long term, conservative stock picks that I think are likely to outperform the market and be relatively stable while the rest of the market is trying to figure out what is going on. To do this, I went through the charts of the 30 stocks that make up the Down Industrial Average. Here are a couple of names that I think are worth considering for long term performance:Back To Top
1. GE
It broke out of a long term consolidation pattern six weeks ago and these week came back well from the recent liquidity related weakness. This stock is not a fast mover but it should be an upward mover so long as it can hold above support at $36.
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2. INTC
INTC broke its downward trend line about two months ago and has been working to build optimism since. There seems to finally be some life in this stock after four years of underperformance, I like it so long as it can stay above $22.50.
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References
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See which sectors are leading the market, and their components.
Disclaimer
This is not an investment advisory, and should not be used to make
investment decisions. Information in Stockscores Perspectives is often
opinionated and should be considered for information purposes only. No
stock exchange anywhere has approved or disapproved of the information
contained herein. There is no express or implied solicitation to buy or
sell securities. The writers and editors of Perspectives may have positions
in the stocks discussed above and may trade in the stocks mentioned. Don't
consider buying or selling any stock without conducting your own due diligence.
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