Comments on: Emotions and Investing http://www.keyfeeonly.com/emotions-and-investing/ Opines on Investing, Financial Planning, Government Policy and the Media. Thu, 12 May 2011 04:35:51 +0000 hourly 1 http://wordpress.org/?v=3.3 By: Morris Armstrong http://www.keyfeeonly.com/emotions-and-investing/comment-page-1/#comment-1382 Morris Armstrong Thu, 17 Sep 2009 03:01:16 +0000 http://www.keyfeeonly.com/?p=2907#comment-1382 Sometime during my third decade of being a currency trader psycho babble became a popular topic. That is my non derogatory term for the psychological probing of why traders act the way they do. Among the conclusions were that traders are skeptical of something that is too good to be true (proven false in the last 5 years I suspect) and that fear of loss and greed in winning were the two main driving forces. Those two go hand and hand and are hardly news. However the remedy to overcome the fear of loss was thought to be developing a good system of trading utilizing risk management techniques and doing your homework. The theory behind the latter of course is that the more you research something the more comfortable you will be with your decision. Research could include technical and fundamental analysis. When you apply that to many of today's investors it becomes fairly clear that the research is missing. They tend to buy off of a magazine recommendation, and that is why they often do not trust their selections; they have little knowledge of who is running their investment. An interesting study would be to see the average holding period of an index fund versus an actively managed one. I suspect that index funds have a longer hold period. Sometime during my third decade of being a currency trader psycho babble became a popular topic. That is my non derogatory term for the psychological probing of why traders act the way they do.

Among the conclusions were that traders are skeptical of something that is too good to be true (proven false in the last 5 years I suspect) and that fear of loss and greed in winning were the two main driving forces. Those two go hand and hand and are hardly news.

However the remedy to overcome the fear of loss was thought to be developing a good system of trading utilizing risk management techniques and doing your homework. The theory behind the latter of course is that the more you research something the more comfortable you will be with your decision. Research could include technical and fundamental analysis.

When you apply that to many of today’s investors it becomes fairly clear that the research is missing. They tend to buy off of a magazine recommendation, and that is why they often do not trust their selections; they have little knowledge of who is running their investment.

An interesting study would be to see the average holding period of an index fund versus an actively managed one. I suspect that index funds have a longer hold period.

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