I spend a lot of time reading articles and comments on Seeking Alpha and other financial publications. Sometimes they are insightful and full of great information, ideas, and discussion; and other times they evoke visions of gossip columns and late night TV ads. The latter of the two is probably why I tend to rely heavily on fundamentals for investing. But in all this reading I have noticed that people often seem to become very emotional, posting comments and even writing articles based on strong personal convictions, emotional fervor, and sometimes major conflicts of interest. It seems like in the comments section of every article there is at least one person clearly trying to "pump" their position, often with no backup or contribution other than their own inkling. I suspect that most long-term successful investors would admit that at the end of the day they make many "gut" decisions that sometimes have no direct ties to objective evidence. But in spite of that, I also suspect that those same people do an awful lot of technical research and un-biased analysis, which floats around in their subconscious while the access their "gut" intuition.
One aphorism that comes to mind is "Never fall in love with your investments." Sometimes people seem to be so convinced and defensive of their positions (gains or losses) that they enter a realm other than reality. This realm is filled with personal bias, comments that would make Rush Limbaugh blush, and rhetoric. I have noticed that Apple (NASDAQ:AAPL) and Research In Motion (RIMM) articles tend to incite such responses, which can be particularly entertaining, as it seems they each seem to stir some of the most passionate emotions. I have read countless comments from patriotic Canadians, arguing the merits of holding RIMM over the past year as it slid to new lows. And I have also seen AAPL fans speak of it using adoring words that most people reserve only for their significant other or perhaps children. The conviction that investors can have seems to border on extreme fanaticism or worse. In some cases (even with a more involved article I recently wrote) I wonder if some commenters read the articles or just the headlines before sharing their thoughts or angles.
It really boils down to the fact that investing and trading can be very personal. Everyone is different and of course has different goals, opinions, biases, and risk tolerances. An investment that is perfect for one person could leave another person losing sleep each night, or worse yet posting crazy comments on financial websites into the wee hours of the morning. While those comments are entertaining to read, they are really great reminders and warnings to stay objective and unbiased. Falling in love with investments is a dangerous phenomenon, and so is sticking by them without reason. It is great to irrationally cheer for your favorite sports team or player from the sidelines even when they are losing miserably. With investments there is probably a healthy amount of fanaticism, but real money is on the line, and it seems prudent to be as objective as possible. It is a hobby for some, but rarely if ever a game.
Sometimes investors analyzing investments come across clear, relatively indisputable evidence to buy or sell. But then they ignore it or rationalize it for a time before coming to their senses. Sometimes the answer is very clear and simple; but they choose not to look at it for fear of admitting a mistake, taking a loss, or missing an opportunity. The real mistakes though, are not admitting errors when they are still fixable and small. Sometimes with large positions or holding positions for long lengths of time can make it harder to stay objective and see it from a clear perspective. Maybe there is some anthropological human nature study that details why this happens. Some people are given clear indication that a stock will fall, and yet choose to hang on or double-down for some arcane reason, all the way down. And sometimes the best position is no position at all.
An extremely useful and simple tool, which investors/traders employ from time to time either deliberately or by coincidence, is to simply step back and clear their head. It is common for an investor to feel like they have to be "all-in" all of the time. Many portfolio managers do not have the luxury of personal investors because they have clauses in their contracts that stipulate they must always keep certain percentages in stocks, bonds, etc. But like leaving a room during a heated argument, it can be very productive for investors simply to close relevant positions, and let their compasses reset, even if it means taking losses in the short-term. There is nothing wrong with going to cash if it helps you regain your balance. People who did this back in 2007-8 may have avoided much of the recession's impacts on their portfolios.
I often have heard that it is impossible to time a market. But just like taking a much-needed vacation, sometimes pulling up the stakes briefly, can bring everything back into focus. Sometimes that is the best way to not fall in love with an investment. The one thing that can be said for certain, whether someone trades from the gut or from the numbers, is that even if you fall madly in love with an investment, there is no amount of wooing that can guarantee it will love you back.
Disclosure: I am short RIMM.