#1 Investing Mistake: Emotional Trading
The man gave me a thumbs-up, patted me on the back … and then threw me out of the plane.
For about 35 seconds, I plummeted to the earth, summersaulting when he flipped us over, putting out my arms to stabilize us when he gave me the signal. It was extraordinary.
But then the earth moved closer, a slab of green and gray that suddenly sported skyscrapers, roads and fields. And for a brief moment, I flat-out panicked. I thought we had gone too far … that we hadn’t pulled the parachute in time.
But a few seconds later, Joel, my tandem skydiving instructor, pulled the chute, and the air caught us. We hung above the Miami skyline for a while, safe. He then directed us to a small, L-shaped strip of grass, where he told me to lift my feet before we slid into the dew-covered meadow like the ultimate waterslide.
It’s something I’ll never forget, and certainly something I couldn’t have done so successfully by myself.
After all, I may have read up on skydiving, but if I had tried to do it alone, I wouldn’t have known the ideal time to jump, when to pull the chute or how to land without serious injury. My fear and inexperience would have meant costly mistakes. That’s just how it goes.
It’s a lesson that I think applies to a lot of situations — particularly investing.
See, the top mistake that investors make is giving into their emotions. They just get in their own way. It could be because of fear, greed, overconfidence or even a personal bias.
For instance, it’s easy to get excited about a thriving company and jump into it quickly, without doing due diligence. America, in particular, is an impatient nation. As much as 96% of us would rather burn our mouths than wait for our meals to cool down, and studies show that half of us hang up the phone if we’ve been on hold for more than a minute.
It’s no wonder then that we have trouble waiting when it comes to trading. Often, we get into positions at their peak. Take Microsoft and the tech boom, for example. At its peak, the company reached the $500 billion market cap for the first time.
Many investors got caught up in the irrational exuberant times of 1999 to 2000, buying into the stock without a second thought because it seemed like no end was in sight.
Then the stock crashed 15.6% in early 2000. It would have been incredibly difficult to reap outsized investment returns if you entered near the peak.
Investors also have a habit of passing on sterling opportunities because of fear or bias.
Even Warren Buffett has done it. Earlier this year, he told shareholders that he made a mistake not buying Google, Amazon and other big tech stocks years ago, staying out because of personal bias: He didn’t like tech stocks because he didn’t understand how they were making money.
There are plenty of other examples of the mistakes investors make when decisions are driven by emotion rather than reason.
That’s why I urge you all to use trading systems. They’re like skydiving with an instructor who has jumped 5,000-plus times (like my guy had). Then you know exactly when to jump in, when to pull the parachute and when to land.
In the end, you don’t make costly mistakes from emotions blinding you.
At the very least, every investor should have one system they follow. It’s simply a way to sleep easy, knowing your capital is safe in a proven strategy with decades of historical data and analysis behind it.
Take our top analyst Chad Shoop’s Automatic Profits Alert system as an example.
His system is based on 20,800 hours of real market data that has allowed him to isolate prime seasons for every sector of the stock market. That’s why his system can time the ideal entry point and exit point for his recommendations.
It’s why it delivers an average return of 62.36% a year — and yes, it made gains even during one of the worst crashes in history. During the year of the 2008 crisis, it made 71.7%. The following year, the system brought in gains of 182%.
You can click here to learn more about how those gains were made.
But this is just one example of the success that trading systems offer. There are plenty of others out there — built by expert analysts — that will let you rest easy without worrying about your portfolio.
In the end, you don’t want to let emotion drive your trading decisions. That’s like skydiving for the first time without an instructor.
Catch you next week.
Managing Editor, Banyan Hill Publishing