Investing is such an emotional rollercoaster. If you aren’t careful you could make decisions that hurt more than help. It’s normal to panic when the market goes down, but making decisions without facts or data won’t do you any good.
So how do you take the bias out of investing? You have to use the data. It’s the only truth of the matter. Anyone that doesn’t use it is guessing – do you want to guess what will happen with your money or would you rather know?
I know what I would rather do – what about you?
Don’t Operate on Emotions
Even the most experienced investor can’t help but get caught up in emotions when losing in the stock market. Whether you act prematurely or make a solid decision too late, the damage is the same – you lose money, sometimes a lot of it.
When you let emotions get in the way, there is no fact involved in the situation. You operate on your gut or on your fear of what you might lose. What facts are you basing your decision on? What if there’s an upside and you are pulling out too early? What if your ‘good feelings’ about a stock are just that feelings and they don’t turn into anything?
Operating on emotions may leave you with great results sometimes and other times you may find yourself with a huge loss on your hands that’s hard to overcome.
Here’s the key – you must use data – it doesn’t lie. Whether you use data that shows you the last 20 years of data from the last month, the key is that you use cold, hard facts when making decisions. Does this mean you won’t lose at the market? No, because there’s never a guarantee that you won’t lose – that’s always a chance.
What using data does is ensure that you have a better chance of winning. It operates on the history of what we know and helps predict the future based on what we know happened. Can anyone perfectly predict the future? No – it’s not possible, even with the most concrete data, but there’s a huge difference between guessing based on what your emotions tell you and what the cold, hard facts say.
What can Data Do?
If you’re looking for quick and easy answers, you won’t find them anywhere, not even in the data. What happens when you expect quick and easy answers? You get lower returns. Most people operate on knee jerk reactions when they want fast answers. Instead, you must continually use the data over the long term. The market’s going to go up and down. There are going to be recessions and there are going to be great times too. If you’re in it for the long haul, data is there to help you.
When used correctly, data can warn you off up and coming recessions and even good times in the market. Is it perfect? No, nothing can predict the market 100% – not even the most advanced algorithm, but using the data gets you closer to reality and making sound investment decisions that aren’t based on fear, emotion, or knee jerk reactions.
Automate your Investments
Are you an emotional investor? Think back to how many times you pulled out of the market prematurely or bought a stock on a whim only to lose it all. Are you still counting? Don’t worry, we’ve all been there.
If this is you, automate your investments. This takes the emotion out of it. Algorithms use facts and hard data. They don’t ask how you’re feeling, if you’re worried, or if you want to jump all in on an investment. They rely on what they know and use it to their advantage.
Automating your investments takes the frustration out of it. You won’t find yourself dodging and weaving, trying to make the most of the market. Instead, you’ll sit nice and tight where you started. You’ll ride out the storm and using the cold, hard facts, you can make decisions without your emotions getting in the way.
Data keeps you sensible. Looking back over the last 20 – 40 years, you can see what the market’s capable of. It usually replicates itself. Now, no one can predict major and sudden downturns, like COVID-19, but put that on your radar. Know that stocks are going to dip or will make drastic changes. The market is very fluid and it reacts to anything that goes on in the world in a more amplified manner than anything else does.
Stay the course – don’t jump ship or make rash decisions because of a large crash. Look at the data, what does the market usually do following such a dip? Think of your goals – are you in it for the long-term or is this a quick win and out type strategy? Keep your wits about you and always go back to the data.
Watch for Biased Opinions
Anyone that gives you investing decisions, even your financial advisors, impart their opinion on you. Is that what you want to trust or would you rather use the data – the truth? No one, even the most knowledgeable investor can predict the future or know what will happen in the market – it’s impossible.
But if you combine the expertise of your advisor with the data, then you have the perfect recipe for a solid investment. Will you come out on top every time? Nope, no one does. But, with the right steps, you’ll avoid emotional investing, make more rational decisions, and base your investments on what you know rather than what you think and that’s a much better investment strategy.