THE MOST QUOTED LINE FROM the movie “Wall Street” certainly must be, “Greed is good.” Yet the most important words uttered by Gordon Gekko are less widely known: “Never get emotional about stock.” In the market, we only control our portfolio and our emotions — everything else is out of our hands. Destroying keyboards, throwing phones and kicking computer monitors are emotional outbursts that tend to drag on performance, not heighten it.
Emotions are not tools of cognition. So in managing a portfolio, you can’t act solely on what you feel; rather, you have to act based on what you think about what you observe. Save the tears and anger for a therapy session after the market closes.
As a young clerk at the Chicago Mercantile Exchange, I was always impressed with how, no matter what his profits and losses looked like for the day, the “local” I worked for was able to maintain the same, dispassionate demeanor in the pit. Regardless if he was up 50 ticks or severely in the hole, his disposition never changed. Beyond his market sense, an integral part of his professional skill was being able to ride the emotional highs and lows. This guy would make $30,000 in an hour and not even crack a smile, or be down more than double that and barely break a sweat. (more…)