Saturday, July 27, 2013

Part 1. Stop Loss – Are you ready to take the emotions out of your stock selling? Play hearts!


Investing is a continuous process of learning, experimentation and self-assessment. I used to play as a student card games, I played evenings away with my parents and friends typically hearts or gin rummy. Whenever I come home after work feeling too tired to do anything, I often turn on the computer and play hearts. You’d think that by now, I’d play the game to perfection but still I win only 50% of the time. There is the chance element, but there is also the ongoing process of still improving my game play. One of the toughest things in the game is to count the cards every time you play a round; it takes effort and concentration and a memory that doesn’t mix up the count with counts from the 10 previous games. Even then, you cannot take into account the randomness of card distributions and the logical or illogical decisions of the computer or people you play with. What about your own condition, do you feel too tired to think? Are you in a mood of consistent logic or are you in a ‘who cares' mood. Are you willing to take a risk that night or are you playing it conservatively?
Investing is a lot more complex than playing hearts, but in many ways it is also has a lot in common with playing games like hearts. It is in my opinion not surprising that a guy like Warren Buffett is so hooked on playing bridge that he bought his first computer to play bridge. I don’t have the patience to play bridge; I am more a ‘hearts’ guy and maybe that is why Warren is doing so much better than me as an investor. The same discipline that is required to play bridge is also making him such a logical investor. Whenever you hear Warren talk about investing it is about numbers; odds and selecting high quality companies with predictable earnings but even more, I sometimes think, with an honest and dedicated management. All decision skills required in the bridge game.
It is true, that your investment personality comes out when you play cards or play golf. I am not a great golf player; I am not even an average golf player but from what I have seen on the odd occasion playing it is that it is a great way to learn about your own investment habits and behavior. Next time you have a chance, asses your sense of risk tolerance and the manner of your decision making on the golf course. If you an el-cheapo like me, maybe play hearts instead.

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