Tuesday, September 21, 2010

For those who

Invest or trade

Something I read and want to pass on

It has been estimated, yes I know, but just take it as an order of magnitude

That the negative effect on seeing a loss on your investments is 2.5 the magnitude of a positive one

This will lead to an emotional deficit

Emotional deficits are cumulative over time

This in turn explains why people who look too closely at their investment movements burn out

Why most traders burn out

And this is because over a short time increment the investor is observing the variability of the portfolio and not the returns

The trader more so although as they tend to be young the effect is not always obvious

Both the trader and investor sees the variance and little else, or at best a combination of variance and returns

Our emotions are not designed to understand this

In a nut shell your system is under pressure the more you follow the movements of your portfolio

Your emotional deficit grows

You might be one of those who feels he can control his emotions

Soreee this is beyond control, few can truly control their emotions

For the investor let your portfolio alone if you can look at it once a year great if not then less is better

For the trader better know that your time is limited and have a plan B for the rest of your life

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