Free Chapter Chapter 9 Emotion

CHAPTER 9…EMOTION

Emotions…and the Sell Decision

Before you buy a stock you should know when and why you are going to sell it. To establish your sell criteria, you have to know why you bought it in the first place. One reliable method of documenting the buy/sell criteria is to write it down. (See the attached sample spreadsheet I use.) Follow the K.I.S.S. acronym…keep it simple stupid! Do not trust your memory. Record just the basic reasons as to why this is a good investment. Some of the reasons could be any or all of the following: (note: the reasons to sell are the opposite of the reasons to buy. Also see stock picking rules in Chapter 10.)

The target price has been met/missed.
Sales are up/down.
Profits are up/down.
Market share has increased/decreased.
New patents were obtained/present patents expired.
New proprietary manufacturing process in place (competitive advantage).

In business I always surrounded myself with people who were better than I was in every respect. I obtained the best information possible. I made sure I was well informed prior to making a major decision. Investment selection works much the same way. Surround yourself with educational material and well-informed advisors. Get all the facts before you make a choice. Don’t feel you have to go it alone. Bounce your ideas off friends or members of a stock club you might join. Following these simple rules will make you a better decision maker.

The reason for deciding when to sell before you buy involves emotion and the control of it. Emotional distractions are at their lowest point prior to your monetary involvement. Once the money is on the line, your judgment is impaired by the inherent uncertainty and emotion attached to every stock purchase. It is a well-known fact that when we are faced with this “dynamic duo”, uncertainty and emotion, irrational and inconsistent choices often result. So by following a written “path of investment” we can minimize the negative effects of emotion. If the facts that have led us to buy a stock have changed, then the non-emotional result is that we must sell. This change in mindset is made less difficult than normal because we have reduced our emotional involvement. This fact is important because the desire for success or the fear of failure relative to the stock investment can skew our perception of the situation. The result may be that we hold the stock well past the logical point of sale, thinking something like, “I know it has to go back up” or, “I’ll give a few more days.” It’s always easier to buy than to sell…

One last essential point: check each stock’s “buy/sell” criteria often for significant changes that may trigger the “sell” mode. How often is often? Quarterly? Monthly? Weekly? That’s up to you and your comfort level. With the software I use, I could scan them by the minute, but my comfort level tells me every week or so is o.k. However, don’t be a victim of “paralysis by analysis.”

Please read this little esoteric dissertation again so it sinks in. It’s very important. It’s my best shot at “drug store psychology.” Use the “investment transaction tracking record.” Filling it out makes you research your potential investments better. Yeah, it’s work, but it’s also your hard-earned money!

A special thought for women here: the different emotions they may encounter are well expressed in an article I read by Cathleen Ferraro, a staff writer for the Sacramento Bee. For women fearing managing money, Acken’s book is a good place to start.

Psychologist’s book may serve as a readiness manual.

By Cathleen Ferraro, Bee Staff Writer

“As 34, Allison Acken appeared thoroughly competent, earning a Ph.D. in psychology, managing a divorce and raising two daughters alone. Even a full head of gray hair then gave her a certain look of wisdom for her age.

But Acken had a secret: Despite handling a lot of things well, she was ignorant about money.

“I was accruing debt like mad to get through graduate school with no concept of what it would mean for my future,” said Acken, now 55 and a practicing clinical psychologist in Los Angeles.

By 1981, she had accumulated $50,000 in student loans and credit card debt. Acken admitted she was six years out of graduate school and almost 40 years old before realizing she was only paying off the interest and never making a dent in the bigger principal obligation. All told, it took Acken 20 years to whittle away her debts.

Now she has written a book – “It’s only Money: A Primer for Women” – due in bookstores later this month about women building their “money-readiness” skills.

It’s not a book about creating an investment strategy, sticking to a budget, selecting stocks or negotiating for a bigger salary. Acken’s aim is more fundamental.

“I’m not trying to be a money manager through my book; I’m a psychologist. But I am trying to get women ready for managing money,” she explained. “This is for a woman who wants to start dealing with money but doesn’t know where to start.”

So Acken begins with what she calls “frightful facts” about American women and money:

Women earn considerably less than their male counterparts for comparable work.

Women live longer but have less stashed away for retirement than men because of women’s lower wages and fewer opportunities for pensions.

Women make up a majority of workers in lower-paid occupations.

Many women with young children work outside the home because of economic necessity.

Acken also asserts that some women, even those who are well off or very successful in their professions, still hide behind their fears of managing money and abdicate to business managers, husbands, fathers, accountants or tax lawyers.

She said some of her clients are unaware, for example, of what fees their banks charge for a checking account or which of their credit cards bears the highest interest rates.

Acken stresses that she is not blaming women, but encouraging them to start simply by talking to their closest friends about money facts, fears and fantasies.

Her book pushes women to ask other women not how much they have in the bank, but how they began to save money, reduce debt, buy property, invest, earn more or save for a vacation.

The point, according to Acken, is not to get hung up on particular dollar amounts, but to figure out how best to deal with what you have, whatever that is.

That all sounds find to Cynthia Meyers, a certified financial planner in Sacramento, but she said scores of women already are financially savvy, well beyond the how-do-I-balance-my-check-book stage.

“(Acken and I) may be talking about two different groups of women, but since I’ve been in my practice since 1983, women have been getting stronger and stronger in this area, and I think it has a lot to do with women having a profession,” she said. “The world has changed.”

Meyers also said that many of her female clients run entire household budgets and investment plans, are quicker to admit they need financial help and tend to be better investors and have greater patience than men.

That said, the local CFP also noted that among her married clients the number of wives and husbands who take the lead on investment decisions is about even.

“It’s not so much about gender, it seems, but about a personality or profession. One spouse is usually more engaged in the process and interested in financial decisions that the other,” Meyers said.

Long before a women matures, leaves home and marries or remains single, parents and grandparents need to get involved. They need to see the economic reality of their daughters’ and granddaughters’ lives and behave accordingly, Acken said, such as considering giving more help to their female offspring to compensate for gender pay gap.

“Families often think in terms of splitting inheritances 50-50 among children, giving the same amount of graduation money or down payments on a house for a son or daughter, but is that really fair when there’s still a 30 percent (wage) discrepancy that seems to be pretty intractable?” Acken said.

Sacramento career counselor Constance Stevens said most of her clients are well aware of the inequities between working men and women but struggle at another level.

“Many are professional women, some single mothers, who don’t know how they’ll pay to go back to school and work at the same time or take a pay cut if they change careers,” she said. “I don’t really hear men say the same thing.”

Ultimately, a woman who has sharpened her “money-readiness” skills, Acken said, would strive to save enough for future needs, plan to buy property and look for ways to help offset the gender pay gap.

“If we’re not aware of what we have to do to compensate for earning less, then it will catch up with us,” she said. “I know this stuff from the inside out because I was one of those women.”

THOUGHT……..

Most investors follow the crowd…the crowd follows the price action…the price action is misinterpreted by the general public at exactly the wrong time based on emotion expressed through greed and fear.

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Free Chapter Chapter 9 Emotion

Send mail to novice@vintagejewelrycollect.com with questions or comments about this web site. Copyright © 2005 Last modified: 02/26/05

Send mail to novice@vintagejewelrycollect.com with questions or comments about this web site.
Copyright © 2005
Last modified: 02/26/05