Why You Need To Overcome Your Emotions When Investing

“The Greatest Enemies of Equity Investors are Expenses and Emotions.”

The DynaLogic Platform

Emotions are controlled by establishing rules-based solutions that are constructed during unemotional times defining what the response will be when confronted with emotional reactions.  DynaLogic’s rules-based platform is designed to help investors overcome their emotions and buy when others are selling and sell when others are buying.   

How Emotions Hurt Your Returns

People are, by their very nature, emotional. Throughout the course of each day, you probably experience hundreds of different emotions. For the most part, these emotions play a critical role in helping you navigate the world that we live in. But, there’s one place where it absolutely does not pay to listen to your emotions…your investments.

In fact, investing based on your emotions can cost you dearly. Let’s examine why that is.

When it comes to investing in the stock market, the best time to buy is typically when prices are declining or at their lowest. You are essentially buying stocks that others are selling at a discount hopefully to enjoy a significant return when the market eventually turns around.

The only problem is that stocks are never at their lowest during periods of economic certainty. It’s typically only when the news is at its worst, conjuring up an emotion of fear.  On top of that, there is never a guarantee that the market will turn around at all.

And the best time to sell is when the news is at its best, a period that conjures up an emotion of greed. 

Going against our emotions can pay big dividends. 

Let’s examine an investment in the  S&P 500 Index.

Let’s say that you purchased $10,000 worth of the Vanguard 500 ETF at the start of 2018. You hold tight through 2019 and, by the start of 2020, you’re up about 27%. You’ve turned your $10,000 into $12,700 and you’re feeling good. But, what happens next?

The Covid-19 pandemic hits. There’s mass panic stirred up by the media and the stock market instantly sets new records for daily declines. In the span of less than a month, your two years of gains are wiped out. In fact, despite all that work, you’re down nearly 14%.

No one knew how much damage the pandemic would do. The world was shutting down. There was no vaccine.  It was a completely unprecedented scenario. 

So, like many rational people, you sell to protect what you have left.

The next few months are filled with lockdowns, constantly changing pandemic rules, and supply chain shortages. But, what happens despite all this uncertainty?

The stock market comes roaring back and returns over 100% from the point where you sold to the start of 2022.

If you listen to your emotions, they will always tell you to sell when the market is crashing. Trying to control your emotions, you resist and hold fast but the dollar amount in your investment account keeps declining and, after each day, you feel foolish for not selling. Eventually you cave and sell possibly when the market is at or near the bottom.

On the flip side, a booming market will always seem like the best time to buy. You’ll hear stories of other people making money and your emotions kick in and you experience fear that you’re missing out  (FOMO). So, you buy when the market has moved up substantially or is at its highest point.

In reality, in both scenarios, you should be trying your best to do the opposite.

Of course, mastering your emotions is always much easier in theory. When you’re in the heat of the moment, it becomes much harder.

That’s why we built the DynaLogic platform. 

DynaLogic sends out daily Buy/Sell signals that are designed to help you conquer your emotions. Our signals are rules-based sending out buy and sell signals based on a predetermined change in price helping you do two things:

1. Take money off the table when your preferred stocks are outperforming 

2. Establish larger positions when your preferred stocks are underperforming

By following DynaLogic’s signals, we’ll help you keep your emotions out of your investments.

You can learn more about how DynaLogic works here.

We hope you found this article helpful. Please be sure to subscribe to our Daily Buy & Sell Signal Alerts and also be alerted of new articles as we write them. Additionally, please follow us on Twitter for updates. 

Note: DynaLogic provides to subscribers relevant and real-time market movement informationon a host of equity securities. Signals (sell or buy) are based solely on mathematical changes in the price of a security. No other methodology is used.

DynaLogic is not a registered investment advisor, and it makes no representation orrecommendation concerning the purchase or sale of any security investment product; DynaLogic provides no advice or recommendation on whether a subscriber should or should not act on any signal a subscriber receives, and it has no knowledge whether a subscriber, in fact, acts on a signal or any signal; DynaLogic maintains no portfolio account or other investment information on any subscriber.