Avoid Emotion: Make Stock Investing Mechanical

The current investing environment is one in which investing emotionally has paid off tremendously well. Consider the Bitcoin investor who just “felt” the momentum behind the cryptocurrency he or she decided to invest in because a cabby said it was the ‘buy of the decade,’ or the stoner who realized he could finally get rich by putting some of his weekly pot money into an actual pot producer, becoming an owner in one of his own suppliers, a seemingly brilliant idea!

There is always room for emotion in investing, and removing such emotion honestly takes a lot of the “fun” out of seeing above-average returns over time for companies one connects with on a personal basis; iconic investor Warren Buffett has bought stocks in the past based on his love for candy, or soda, or Burger King, or ketchup.

Indeed, having a connection with companies one owns makes it easier to understand the durable competitive advantage argument behind the trade, an essential component which should not be ignored.

That said, after an investor has chosen a stable of great companies using all the fundamental and qualitative data available, having a mechanical way to re-balance a portfolio annually or quarterly can be a very effective tool to manage one’s portfolio risk and maximize returns long-term.

Having criteria, or benchmarks, to sell off companies which have seen gains which have made them a higher percentage of one’s portfolio and reinvest those funds into companies that have similarly become a smaller percentage of one’s portfolio can balance out said portfolio to a level which makes sense long-term.

Invest wisely, my friends.