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So, the simple equation appears to be: the shorter the gap between perception of a change and the belief that we must immediately react, the more likely we are to react from emotion. |
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Conversely, the longer the gap between perception of a change and the belief we must react, the more rational thought may enter and shape the decision, and the less reliant we will be on emotion. |
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This is why the whole nature of the speedy market begs for us to react more from emotion than clear, rational thought. And it is why those who can "think on their feet" are apt to get less caught in the emotion of the moment and have a larger amount of clear thinking enter the decision. |
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What about the longer-term investors? If we are not in a hurry and don't care that much about whether we enter at one price or another, and don't care to react quickly to take advantage of news, can't we take all the time we need to weigh our decision? Yes, of course. But even without the push of the speedy market, even after the cognitive processes have been exercised in analyzing a stock, we often still end up making an emotionally based decision! |
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For example, after doing research on the past performance of a stock, finding out the moving averages, highs and lows over the last year, and knowing what a good price would be, they will still pay more for the stock to have it now than waiting patiently for it to come down to a level that promises a better return. |
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Valuation, in other words, while considered, is then tossed out the window when the actual purchase is made. They haven't got the patience necessary to take their time before making the trade. The greed of wanting to get into the action now wins out over waiting for the right time to buy. But there is another crucial reason at work. |
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And here is where the flip side of the ease of online trading contributes to the problem. It used to be that we were forced to call brokers, discuss a stock with them, let them do some research, then call us back and tell us what they thought. If the broker liked it and we wanted to go ahead, they'd place an order. The process itself made for gaps of time to consider what we were doing. And we had nothing whatsoever to do with actually placing the trade. |
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Now, with a few clicks of the mouse, we've bought the stock. The process might be as swift as a scan of short- and long-term performance charts, an earnings report, maybe a comparison to other stocks in the sector, a look at the web site for information and the fundamentals, and perhaps a few online analyst reports and a scan of a couple bulletin boards to see what those in the stock are think- |
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