I have read once from a trader who said. We have to only love our dog, wife, children, but not our stocks. It sounds reasonable, but what is the real sense behind this sentence.
As we are human being we are weak and mentally easily manipulated. Let’s say you own some oil long contract and you are convinced that the price needs to go up. Maybe you have some fundamental arguments maybe only your sentiment is bullish. But here comes the problem since the computer and internet take off after ’80s there are hundreds of articles within only one day on the internet about oil. So the next day you decide you want to be well informed and knowing everything about the oil. So you start reading. After few hours you filled up with miriads of new informations and get frustrated and not so sure about your oil long anymore. Too much information makes you unsure about the simple thinks too. This is a conformity bias. We don’t want to be different than others. And if you read that everybody is shorting the oil you think the sell side is better. So you cover your long, just for being the part of herd.
The other big mistake, I call this unreasonable commitment to our assets. The point is that we love our assets what we own. If it is not making profit anymore for us like Apple has done in the last 2 years we are still holding because we created some sort of mental relationship with that investment. Personally I cannot afford to build up any personal relationship with my investment because it is business and it is about money and profit not about the love.
Let me give you an example. Most of investors don’t buy no name companies just buy the flashy stocks like Apple, Starbucks, Facebook, Twitter...etc. They can be crazy about these corporates and still holding when all the rationality dictates to sell. The point is that most of those trendy companies usually underperform the market. Cause they are super expensive.
The most profitable shares are unknown for most of us. The big mass don’t want to own them. Because they don’t know and in some cases they hate those without any rational motivation. But these small cap companies are much cheaper and deliver higher performance.
So what I suggest close out all your preconception and just analyze each company with cold blood and head. Cause the investment is more serious than use our emotions. It is about money.
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The BFM Assets Team.
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