Emotional Knowledge is Key to Investment Success
It is not the smartest people that succeed in investing it is the investors that are mentally prepared and mentally tough that succeed over long periods of time. We have all heard that investors tend to sell when they should be buying and buying when they should be selling. I believe emotions are the single largest factor that inhibit investors from living out their investment and retirement dreams. Understanding the degree to which biases affect a person’s decision is a first step, striving to conquer these biases is a life long journey.
What is your Sell Discipline
When I ask this question, most don’t have anything to say except, “my advisor handles that.” Of course, my next question is, “so, what is your advisor’s sell discipline?” Once I explain the importance of having not only a buy discipline but also a sell discipline, they become intrigued. I will attempt to explain that to you here.
There are pockets of hope in 2016 for a more sustainable economy. The jobs picture, at least portrayed by the government, has improved based on their measures. Inflation is low. Corporate profits are high. Under the light of the media the economy is improving. However, as I have been sifting through the data, there are two areas of concern I think we need to discuss. First is Government Debt. We owe as a nation, $18 Trillion in total debt, and we are borrowing $500 billion a year.
The Fed’s Dilemma
The Fed is expected to raise interest rates this week for the first time in nine years. This could be a turning point in the overall economic landscape. The Fed in its latest meeting has sighted a healthy employment picture and an expectation that inflation will normalize in the near term as the reasons for a rate hike this week. We typically think of low inflation and low unemployment as keys to a healthy economy and this is for the most part true.