Investment strategy – putting first things first.

Whether you’re on the fast lane trading with penny stocks or riding the slow, steady, Clydesdale horse of long-term investing, it’s vital to keep a clear head and a concrete agenda while you’re interacting with the stock market. Emotional decisions can wreck havoc on your portfolio! Save your emotions for that romantic comedy you’re telling everybody you’re not going to watch,

However, the ability to understand emotions and to be able to use that empathy in a calculated way can be a good thing. It’s not hard to see the herding mentality that guides much of the stock market. When something is perceived as a good thing, people will flock to it – sometimes to the point of said stock becoming overvalued. It’s similar to a situation where a group of three people decide to look up at the side of a building and point. Soon you’ll get a crowd of people also looking up. If the three people at the beginning then move off, eventually the rest of the crowd, who finally realize that there is nothing worth looking at, will also continue on their way, leaving only the stragglers.
As for the straggling gazelle in a herd being chased by lions, so it is with the stock market investor. Straggling gazelles get eaten. Straggling investors get left holding stock which they can only sell at a loss. Keep your eye on the stock and bail as soon as it loses interest.

Money can create a strong emotional response in people. It’s that simple.

“Recession has always been a factor raising divorce rates.” – Gary Becker, Nobel prize winner and economist at the University of Chicago Business School

The Korea times published an article on August the 19th, 2011, noting an increase of suicides, replaying what happened in the 1997-98 Asian currency crisis and the 2008 global financial turmoil, due to the volatility of the stock market. Financial turmoil and monetary loss can be devastating to a person’s well-being.

As touted in Stephen Coving’s best-seller “The 7 Habits of Highly Effective People”, building principles and keeping first things first will give you fortitude against acting reactively in relation to the stock market.

Reactive people will have a situation happen to them and they will act according to a knee-jerk reaction.
Proactive people have a situation happen to them, and then they take the time to choose how to react to that situation based upon their principles.

And this can help you not just with investing but almost all facets of your life.

Principles for the stock market

List several other principles you want that will make you the kind of investor you want to be, and use it to reign in the emotional impact on your investment decisions. Life by design never happens by accident.