Benjamin Graham, one of the fathers of value investing, once said, “Individuals who cannot master their emotions are ill-suited to profit from the investment process”. Tom and Brendan discuss the topic of emotional investing during this week’s Mullooly Asset Management podcast. When investors let their emotions creep into their investment decision making process, it can hurt their results.
When Tom and Brendan talk about emotional investing, they aren’t only talking about panic buying and selling. There are plenty of subtle ways that investors let their emotions get the best of them. People let things such as the economy affect their investment decisions. As we’ve explained previously, the economy and the stock market don’t always go hand in hand. Another topic that we have discussed before plays into emotional investing as well. The financial media can toy with the emotions of investors very easily. Remember that these “financial experts” are paid to create a buzz, not to manage your investments. These are just a few ways that people allow emotions to get in the way of investing.
So how do we handle emotional investing at Mullooly Asset Management?
We utilize point and figure technical analysis. If you aren’t familiar with this method, visit our point and figure section to learn more. These charts allow us to remove emotion from the equation when it comes to investing. In a point and figure chart everything is represented by X’s and O’s. Simple enough, right? These symbols give us clear buy signals and sell signals. The charts also allow us to see favored sectors and favored names within each sector.
To put it simply, point and figure charts let us know what is in supply and what is in demand. It works at the grocery store, it works on Main Street, and it certainly works on Wall Street as well.
Tom shares a real example from 2007. It highlights point and figure technical analysis providing the emotion-free market indicators that investors needed.
Emotional investing can truly hurt investment performance. We believe that it is far better to stick with emotion-free indicators like point and figure charts. To learn more about emotional investing listen to this week’s podcast!