​5 Ways to Isolate Your Emotions from Stock Market Movements

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Summary:

  • Isolating yourself from stock market movements helps reduce your emotion levels and helps you make much better investment decisions
  • You should design an Idea Management system that keeps you insulated from daily changes in stock prices
  • Be careful not to let technology and television influences your emotions

Many investors don’t realize how much seeing daily price changes in their stock holdings or their investment ideas impacts their emotions. There is a reason that many stock price apps and software glare red or green at you: they want you to feel euphoric or panicky, so you will trade. Your trading activity is how Wall Street gets paid.

Having realized this, I began looking for ways to minimize my exposure to fluctuations in stock prices. Here are five ways that I have reduced my exposure to minute by minute fluctuations in prices.

When I’m away from my office, I store new ideas on the stock ticker app on my iPhone.

Keeping track of ideas is part of an organized system I call the Idea Management system. The purpose behind this system is to capture and track all ideas until a decision is made. I recorded episodes 72 and 73 on the topic of Idea Management and how you can set up a similar system.

Using the iPhone to trap ideas I read about, hear about, from whatever source keeps me from forgetting or losing ideas.

The next step is to transfer them from the iPhone app into the Idea Management spreadsheet. Once they have been transferred, I delete them from the iPhone.

To make good, rational investing decisions, you need to keep your emotional levels down. There are scientific studies that show that the higher your emotions, the worse decisions you will make. Keeping the iPhone clear of tickers will keep me from obsessively checking stock prices and remove any emotional reaction to those changes.

Don’t watch CNBC or Bloomberg

I used to enjoy watching CNBC during the day until I realized that I was not getting useful, actionable ideas, and was exposing myself to tons of emotional content throughout the day. The programs on these channels are full of emotion creating words like “plummeting, rocketing, crisis, mayhem” and so on.

They use these words on purpose. They want you transfixed to the screen where they insist that you can’t make a good investment move unless you watch all their programs. So…off went CNBC.

My watch lists are not part of my brokerage account

Another way I have isolated myself from market movements is that my watch lists are no longer part of my brokerage accounts. I moved all my watch lists on to MS Excel. They only way I can see my watch listed ideas is to open Excel and update the data by pushing a button.

By not seeing the minute by minute changes in my brokerage account and not seeing minute by minute changes in my watch lists, I again remove most of the emotion creating interactions with my ideas.

No daily news subscription

I used to be a subscriber to the Wall Street Journal and would read it every day. What I didn’t realize in the beginning was the, again, high level of emotional content spread throughout the newspaper.

After a few months, I also noticed that a ton of articles repeat a third of previous articles on the same subject. You are overwhelmed with stories that are super repetitive and are not really relevant to what you are trying to accomplish.

I DO subscribe to Barron’s and Bloomberg Business Week which are weekly only and delivered on weekends primarily. I get a good dose of news and the weekly only versions tend to boil down just the most important information since they are not trying to fill out a daily paper.

Further, I also look at Twitter once or twice a day, and have the BBC app on my phone to look at international news. Not all the time, not obsessively, just within reason. I make it a point to get my news from a lot of sources, not just a few.

There is a lot of good news content in the annual reports and presentations of companies that are much more valuable than most of the crap on the media.

Do you homework BEFORE looking at prices

For ideas that I am working on that have passed through all the initial “Bad Idea” filters and survived, I try to complete my 10k reviews, presentation reviews, and do a valuation BEFORE I look to see where the idea is trading. This should help keep some emotion based biases from creeping into my evaluation of the company.

This is one of the most difficult things to do. Any time you are researching a company and have to type its ticker symbol into an search platform other than the SEC, there is a good chance the stock price will pop up. Much of the evaluation work I do is off-line, but it’s definitely a struggle to avoid seeing the stock price.

The way Buffett deals with this is he has a special no-technology room that he goes into to just read. Some other value investors are following this technique such as Guy Speir, and Mohnish Pabrai.

Conclusion:           

You should actively set up your investing lifestyle and tools to minimize your exposure to seeing changes in stock prices and instead focus on pushing ideas through your insulated Idea Management System. For more about these systems, check out:

​Ask JB: Should I automatically reinvest dividends or take the cash?

: ELI5: dividend reinvestment vs using cash to purchase stocks (self.investing)

submitted 10 hours ago by mugenowns

So I see a lot of people advise to have dividends reinvested when you buy stocks. Is there an advantage to doing this rather than taking the cash and using that cash to buy more stocks?

Ex Aaron buys 1 share of a company for $100 and has the dividends reinvested. Let's say $10 a month.

Zach buys 1 share of the same company, but he takes the dividend and saves it in his savings account for ten months and then when he has $100 he buys another share.

Who's better off? And why?

JB Says: The answer depends on the stock market valuation of the company. If you had cash, would you be buying the stock at the level it is selling for now? Or is it over-priced? Dividend Re-investment Programs (or DRIP for short) are good for one reason and for one type of investor:

  • If the DRIP allows you to buy stock below the market price
  • Some DRIP programs actually give you a small discount, such as 5% from the market price in determining how many shares you will get each quarter
  • If you are a passive investor who just wants to set, and forget. You will end up having bought at high prices (and low prices) and will average less return than an active investor who stops buying when a stock is fairly priced or over-priced.

I might do a DRIP if I think that a stock will remain under-valued for a year or two, but am more likely to just take the cash and funnel it into something with a larger margin of safety.

Ask JBWhy would a company have an executive chairman and CEO sepeeratley? (self.investing)

submitted 18 hours ago by Bcrane0305

So whose in chrarge?

JB Says: Most public companies and private corporations will have a Board of Directors that are responsible for oversight of the management team. The CEO would report to the Board of Directors. The Chairman of the Board leads to Board in its duties, just like the CEO leads the company.

Sometimes the Chairman and the CEO are the same person, and this can create a conflict. If the Board does not have strong independent directors who can keep a combined Chairman /CEO in check, the Chairman/CEO can influence the Board in such a way that shareholders are ignored and potentially even hurt by insider cronies.

You will see a number of public companies with combined Chairman / CEO roles scolded by major pension fund shareholders. This combined role is seen as poor corporate governance in most cases.

​Activist Investor Action Alert: Marathon Partners Influences $JAX

http://www.barrons.com/articles/marathon-wants-to-auction-off-j-alexanders-holdings-1506747914

Thoughts on this podcast? Disagree with me on some point? Something I missed? Leave a comment!

About the Author

Jeremy Scott Bailey is an investor, author, entrepreneur and host of the "What Works In Investing?" podcast now available on iTunes. He is founder and Chief Investment Officer of Burgeón Group, Inc. an investment advisory firm that provides portfolio management services to families and individuals.

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