Emotions and Opinions


I thought I would start by talking about the two things that cause so many problems and create so many mistakes for investors. Emotions and Opinions

Jesse Livermore discusses the adverse conditions that arise when investors allow emotions and opinions to enter ones investment philosophy.  Below are a handful of his quotes regarding them.

  • “Too many investors have their own opinions about the coming market directions, and they are frequently wrong.”
  • “He knew that his biggest enemy was his own emotions”
  • “I believe that uncontrolled basic emotions are the true and deadly enemy of the speculator; that hope, fear, and greed are always present, sitting on the edge of the psyche, waiting on the sidelines, waiting to jump into the action, plow into the game.”
  • “Prudent speculators never argue with the tape. Markets are never wrong, but opinions often are.”

Livermore was one of the best, if not the best, investor of all time. Thankfully his methods have been recorded for us to use and learn from. Of all the lessons I have captured from Jesse Livermore I have to say this is the one that stands out the most. The truth is no one is capable of predicting the market direction. In fact, I find it scary when someone feels they can. It is that belief that sets investors up for potential massive loses. Let’s let the market tell its own story. The terms, I have a hunch, or gut feeling, I feel, my opinion, etc have no room in our investment philosophy.

Successful investors know that making money in the stock market is about putting the odds in your favor. Instead, too many investors use emotions such as fear, greed and hope as well as their many opinions as the bases for decisions. As investors, we need to understand that the market does not care what we think. Nor does the market does not care how we feel. Once we understand this we can then work on using a systematic, odds driven investment philosophy to increase our probabilities of success.

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