How to Invest Like Spock

“Once you have eliminated the impossible, whatever remains, however improbable, must be the truth”

By Ed Emerson

How emotionally removed are we from the market events of eight years ago?

Not very.

How about twice that time frame ago; when bitched slapped the Nasdaq and every other techie paper-tiger plc within spitting distance of an index?

Not very at all.

Might that we could play Spock with our emotions in the affairs of money and investing.

Impossible Ideas

And isn’t it funny how deeply connected money and emotions truly are. 

There’s a weekly measure of how investors are feeling about the stock markets. It’s called the American Association of Individual Investors or AAII.

Now, in the words of Alan Steel, Chairman of Alan Steel Asset Management we should always put in practice the Latin meaning of the phrase “Nullius in Verba.” 

In translation it means “Take no one’s word for it, and checking things out for yourself.”  

And when you do have a look at the AAII, you’ll find that the majority (the investor herd) is not at all comfortable with how things in the market are being portrayed.

“Market sentiment refers to the psychology or emotions of market participants.  At times, investors are acting on feelings of fear and pessimism.  At other times, hope, overconfidence, and greed characterize investor psychology.  Investors react emotionally to the market, and these reactions affect the market.  Thus, investor psychology is both influenced by and an influencer of market activity.”  Charles Kirkpatrick and Julie Dahlquist

Orgies of negative headlines in pursuit of readership and viewer volumes to drive advertising revenues, are holding market opinion and helping to maintain these levels of investor discomfort.

But beneath that awning of gloominess we shouldn’t be too quick to shelve a few considerations about that bad ol’ puddy tat.

What Is Truth…

It’s difficult to deny that the major indexes are at record high levels.

Unfortunately, the amygdala or Lizard Brain – that panic button in the centre of our heads that saved us from sabre-toothed thingies millions of years ago when we lived on the Savannah grasslands – is hardwired to run for safety.

(Spock has no such brain mass.)

In other words, investors inherently view every new stock market high like a mountain peak from which they can only fall down.

And when confirmation bias is allowed to run riot in the collective investor mind on the back of maudlin media reporting, the result becomes insanely the same.

The herd swims about like Dory from Finding Nemo,  who panics at everything and remembers nothing.   

Stranger still that, in an odd way, historically low belief in the future returns of stocks sort of safeguards the longevity of any bull market – like the one enjoyed by the minority of investors for the last eight years, if you were clever enough to jump in back in around early 2009.

How Illogical

That’s because bull markets don’t tend to crash when investor sentiment is low. It’s another one of life’s little ironies; you’re at far less risk of a sudden crash when no one gives a shit about that particular asset class.

Oh, and money is cheap right now.

Historically high stock markets are in play while interest rates are historically low. That’s another oddity in the current environment. 

Like low cost energy low interest rates are somehow supposed to be a bad thing (as was higher-priced energy if I remember correctly). That thought process is a listing ship that my brain simply cannot right. 

And equally, how that combination is driving the bulk of investors to buy things that very nearly guarantee a loss over a long period of time (yes, I’m speaking to you, Mr Bond) is a stock market mind fuck more debilitating than a 2007 shit stack CDO (they were one of investment toys – bad rated things with a few good rated things – that brought the real estate market house down in 2008).

It’s just emotion taking you over…

Try just looking at the facts instead and consider the markets as Spock would.

Any other approach is simply illogical. 

Other Things to Do While You’re Here…

  • Find out which UK banks lend to self-employed people here
  • Find out the best way to check all of your credit here
  • Find out how to create a day trading strategy here
  • Find out how to build your financial security here
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