How probable (in percentage terms) is it that the following events will occur in your life:
1) Within the next year, you will meet a new person who will come to be a very good friend.
2) You will be involved in a major automobile accident within the next five years.
Psychologists have studied the effect of moods on decisions. They have their subjects write an essay about a sad or happy event in their lives. You see, reliving the event through their writing puts the subjects in bad or good moods, respectively. Mood appears to affect their predictions about the future. People who are in a bad mood are more pessimistic about the future than people who are in a good mood. That is, the subjects who are in a good mood give a higher probability of good things happening and a lower probability of bad things occurring.
Getting back to the questions above, the people who are in a good mood believed they had an 84% chance of “meeting a new person within the next year, who would come to be a very good friend. The people who were in a bad mood believed that the chance of this happening was only 51%. Alternatively, when asked for the probability of being “involved in a major automobile accident within the next five years,” people who were in a bad mood felt the chance was 52%. Those who were in a good mood thought the chance was only just 23%.” People who are in a good mood view the future differently than people who are in a bad mood.
In addition to the importance of emotion, people are often insensitive to change in the facts used in cognition. One such fact is the probability of outcomes. For example, people tend to treat the probability of winning a lottery with odds for 1 in 10 million or 1 in 10,000 similarly when making a decision. Yet the later (1 in 10,000) has a 1,000 times higher chance of happening. In particular, the decision to take the gamble is relatively insensitive to large changes in probability when the gamble evokes strong emotions.
Emotions play a vital role in the process of complex decision-making. How an investor chooses to address this fact could be the difference between a winning and losing portfolio. It is crucial to focus on developing the ability to objectively analyze the projected success (or failure) of a stock. This ability will carry into other areas of investing and it will also help to better assess an individual portfolio, as well as the overall market. In fact, if there was ever a “number one rookie mistake,” investing with emotions would more than likely take the cake. All too often an investor will buy or sell a stock because of “what they felt.” How many times have you heard someone say they had bought or sold a stock based upon a “gut feeling?” More often than not, those “gut feelings” were dead wrong; leading to stocks that were bought or sold too early, or even worse, too late. Whether or not they admit this to you, is an entirely different subject in itself.
And yet this is the exact scenario the Gorilla has heard over the years. While the story may be told from different subscribers, at different times; the story is always the same. Investors that let emotions cloud their judgment or skew their outlook often end up making pivotal decisions based on their emotions; and more often than not end up making the wrong choice. While the stock market deals mainly with dollars and numbers, it is more psychological than most investors recognize. In fact, there have been countless articles and books written on this phenomenon. And still, it is no less of a problem today than it was decades ago.
Even if you haven’t exhibited the behavior detailed above, there are countless examples of investors’ emotions ultimately leading them to the wrong conclusion. In either case, it is easy to see how using a simple, risk controlled investment system can act as a “support system” in today’s modern investment world. The key to investing is to ignore those “gut feelings” by removing emotions from the equation, in order to objectively assess the success of a potential investment. And the key to growing any portfolio is simply to ride the winners and cut your losers while they are still small. GorillaTrades takes the guesswork out of investing by telling you which stocks have the highest potential for capital appreciation, and then clearly explains EXCATLY when to enter into a position, and EXACTLY when to exit. With the Gorilla’s market advice, you are able to easily navigate through this “jungle”of a stock market, as the Gorilla’s unbiased approach to investing has helped thousands of subscribers across the world to invest like a Gorilla. Return to GorillaTrades today!