Emotional Investing: Save the tears for a funeral
Today's Financial News - Posted April 7, 2009
Earnings season is just about to kick off. When it does, emotional investors will be in for a rough ride. If you want to make big profits, you have to stick with the facts and the figures.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore — (TFN): The last time I cried was at my wedding. It is not something I am particularly proud of, but remember it because it was such a rare event. I am far from one of those emotional, tofu-eating, Prius-driving, new-age guys you see on Oprah.
I believe emotions are a waste of time and energy, especially when it comes to investing. Making money is about dollars and cents, not feel-good headlines and spikes in investor sentiment.
Unfortunately, as this recent financial fiasco unfolds, I may be getting pushed into the margins.
Emotional investors are controlling Wall Street. It is the reason we are stuck in a nasty, wealth-destroying rut. Without empirical data and true earnings figures, the Dow will be stuck bouncing off the 8,000 level for what could be months.
So who is to blame for this intellectually retarded market? Look no further than our elected officials.
When voters head to the polls, they make their choices based on emotions. Which candidate ran the most sensitive ads? Which wannabe senator promised to make us feel the best? What issue makes us the maddest?
If politicians get in office based on emotions, it is no wonder they rule their recently-seized American economy the same way.
We saw it with the AIG bonus scandal. It was a week of fury and fire as the House angrily enacted laws our forefathers would have waged wars over.
We saw it with the numerous stimulus packages. None of the people we entrust with our nation’s fate had a clue what needed to be done, but their gut told them something had to be done immediately. After all, Americans were losing their jobs, their homes and their luxury cars. Emotional stories were all over the headlines.
The only thing truly sad about all of it is how the nation spent trillions of dollars trying to fix an unsolvable problem.
Save the tears for a funeral
Our president has spent the last week doing exactly the same thing. He realizes he does not have the facts and figures to get the world’s governments to follow him. Political stalwarts like Medvedev, Sarkozy and Merkel won’t fall for emotional traps.
But their constituents will.
That is exactly why Obama is parading across Europe, holding town hall meetings and pushing the emotional buttons of down-and-out Europeans. As his minions, he knows those folks will force their leaders to follow the American president.
Obama hinted at his goals with one short sentence. “The world will be what you make of it,” he said. Figures do not matter. The history is in the past. The only thing that matters is how we perceive ourselves and how we feel today.
He campaigned on emotions. He will rule on emotions.
We have all been taught that just two emotions rule the markets, fear and greed. It may be true, but only one thing makes a successful long-term investor, buying assets at one price and selling them for a higher price.
Lately, those prices have been controlled by emotions. And we got a cry-baby’s rally. But the trend will not last.
A numbers-based economy
When Alcoa (NYSE:AA) announces its latest earnings figures after today’s closing bell, an extremely important earnings season kicks off. Instead of banking on emotions, Wall Street will have the figures it needs to start pricing stocks accurately.
For some investors, it will be good news. For others it will be terrible.
We all know the sectors filled with emotional investors: green energy, Detroit, the banks and the most emotional of them all, satellite radio.
Unless you tread carefully and can make in-and-out moves with surgical precision, these sectors could destroy your portfolio.
Ask the most manly of men and they will tell you emotions make you look like a fool. For the most part, the notion is debatable. But when it comes to Wall Street, they are dead-on accurate.
Invest with your brain, not with your heart.
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