In our flagship Thrift Savings Plan Newsletter we pride ourselves with the content we include month after month. We believe our strategy is the best available and the investment education we provide to our subscribers is invaluable. While our indicator is proprietary, we want to be very honest with you…
Our indicator isn’t compromised of million dollar algorithms. Understanding it in its entirety isn’t easy but it’s likely not as hard as you imagine. We don’t have any specialized knowledge that is withheld from the public.
So what in the world makes our strategy special? It’s quite simple actually…
We pride ourselves on eliminating emotion from all our investment decisions. The last thing we want our subscribers to do is lose their emotional wits at paramount times in the market. Catastrophe often strikes when emotions get intertwined with managing risk.
Our goal isn’t to train our subscribers to manage their emotions or suppress them. Instead, our goal is to provide enough information and investment education regarding our system that they have full confidence in every decision they make.
This certainly won’t happen overnight but we believe in time you will be able to master your emotions. And if that doesn’t work you still have us as a guide!
Poker Helped Me Master My Emotions
Most people don’t believe me, but many years ago before my investing career I was an avid “No Limit Texas Hold Em” Poker player. I wasn’t a professional player but at the time I had dedicated a significant amount of time playing and learning everything I absolutely could about poker. In fact, it’s because of my time playing poker I was able to master my emotions very quickly compared to other novice investors.
My parents absolutely despised the idea of me playing poker. To them poker was simply gambling and they believed I had no business wasting my time or my money playing.
But I saw things differently.
Contrary to popular belief, poker is more about calculating probabilities and risk management than it is reading someone’s face or body movements. Yes it’s gambling, but it is calculated gambling where the odds are always in your favor if you can do simple math in your head and control your emotions.
Just Like Stocks – Each Hand Has A Value
If you are unfamiliar with poker, each hand has a value which either trumps another hand or loses to another hand.
Knowing the value of each hand is imperative, just like knowing the value of a company you decide to invest in. If you don’t know the value of your hand compared to the possibility of other hands at the table, then you’re setting yourself up for failure. Yet, this happens time and time again at poker tables around the world. I could never wrap my head around people risking their money blindly.
As with stock investing, there is always a risk and reward.
Understanding risk and reward is the first lesson a poker player should learn and master. The same goes for investors in regards to proper asset allocation and risk management. If you thoroughly understand those two concepts then mastering your emotions is far easier to do.
Think about it for a minute…
If you knew beyond a doubt that whichever stock you chose to invest in, the most you could lose was .0125% of your overall portfolio, would you be an emotional wreck if things went south? Let me put it another way. If you managed two separate $100,000 portfolios, the first portfolio had a chance of losing .0125% for every investment you made and the second portfolio runs the risk of losing 5% for every investment made. Which portfolio would you worry about more? The second portfolio!
The same thing holds true for poker. If someone raises $100 on a $10 dollar pot, what sense does that make? As a methodical player, I folded that hand 9.5 times out of 10. Why in the world would I risk $100 just to win $10? The risk/reward ratio makes absolutely no sense to me yet people did it all the time.
When you manage your risk before entering into an investment or a hand in poker, it’s far easier to control your emotions because you know up front how much you can lose and how much you stand to gain.
Let Trailing Stops Control Your Emotion
There is a term in poker when a player is playing on nothing but pure emotion because they are either frustrated or scared. It’s called “Tilt” and I wish there was a word for investors as well. We’ve all been there, I know I have. The most rational of fundamental or technical arguments regarding a company couldn’t get me to budge on my “hope” or “position” that the stock would turn around and make a comeback.
I saw the same horrific warnings as everyone else, I was staring at a loss of 20%, but I couldn’t stomach the thought of realizing a 20% loss. My pride wouldn’t let me!
I have some news for you that the majority of professional investors are not willing to tell you…
When it comes to investing you are more likely to be wrong than you are right. Yes you read that correctly and I will say it again, you are more likely to be wrong than you are right! The difference between being a true investor and simply gambling in the stock market is the ability to exit your losing investments the second you realize you are wrong.
Step up to the plate admit you were wrong and move on. While easier said than done I can guarantee you will reserve far more of your capital utilizing this concept than wishing and waiting for your analysis to be right.
In our dividend newsletter we use trailing stops to keep our emotions in check. While we put a tremendous amount of research into these stocks the market does not always correlate with great businesses. Our number one focus is to construct wealth building portfolios and we cannot do that by letting emotions get in the way.