Keep in Mind - Part2
A couple years after I joined Money, I stumbled across an obscure academic article that shocked me. A psychologist had compared the investment results of people who received frequent news updates about their stocks against those who got no news at all. He found that no news is good news: Investors who were kept in the dark outperformed the news junkies by up to 56%.
Redouble your research -- If a stock or fund goes straight up, don't just enjoy the ride. The better an investment does for you, the more powerfully your brain will believe nothing can ever go wrong with it. Each time it rises, say, 50 percent, study it again more closely; ask what could go wrong; seek out negative opinions. The time to do the most homework is before bad news can catch your brain by surprise. There are no guarantees, but doing extra research just when things are going well is the best way to prepare yourself in case something later goes wrong -- or seems to. You'll then have a better sense of whether it's a false alarm or a real one.
Build an emotional registry -- Remembering what you did is only one way to learn from your own experience. Emotions can be an excellent guide to what you should and shouldn't do. But to use them as an accurate guide, you need to remind yourself of how you felt after your decisions (and their results). "Regularly evaluating whether an outcome made you feel good or bad," says University of Iowa's Antoine Bechara, "will help you learn from your behavior." Keeping a written record of your feelings -- what Bechara calls an emotional registry -- is a good idea, particularly if you are a younger investor. Store these "feeling records" alongside your trading records.
Look at the long run -- Remember that your brain perceives anything that repeats a couple of times as a trend -- so never buy a stock or a fund because its short-term returns look hot. Check out the long run, and never assess performance in isolation; always compare a stock or fund to other similar choices.
Redouble your research -- If a stock or fund goes straight up, don't just enjoy the ride. The better an investment does for you, the more powerfully your brain will believe nothing can ever go wrong with it. Each time it rises, say, 50 percent, study it again more closely; ask what could go wrong; seek out negative opinions. The time to do the most homework is before bad news can catch your brain by surprise. There are no guarantees, but doing extra research just when things are going well is the best way to prepare yourself in case something later goes wrong -- or seems to. You'll then have a better sense of whether it's a false alarm or a real one.
Build an emotional registry -- Remembering what you did is only one way to learn from your own experience. Emotions can be an excellent guide to what you should and shouldn't do. But to use them as an accurate guide, you need to remind yourself of how you felt after your decisions (and their results). "Regularly evaluating whether an outcome made you feel good or bad," says University of Iowa's Antoine Bechara, "will help you learn from your behavior." Keeping a written record of your feelings -- what Bechara calls an emotional registry -- is a good idea, particularly if you are a younger investor. Store these "feeling records" alongside your trading records.
Look at the long run -- Remember that your brain perceives anything that repeats a couple of times as a trend -- so never buy a stock or a fund because its short-term returns look hot. Check out the long run, and never assess performance in isolation; always compare a stock or fund to other similar choices.
posted by Shelton D'Cruz at 2:05 AM
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