Investor psychology

Just a quick thought or two on investor psychology.
This is the area that will make the difference in the success or failure of your portfolio.
Go to Las Vegas, Atlantic City or any one of the many Indian gaming casinos. As you walk in the door look around and do a quick evaluation of the investment that has gone into building and operating that casino. Think about it as a business and ask yourself what is it that they know about their customers. The answers are directly relevant to your own psychology and what you should NOT do as an investor.
The reason that Casinos work, is that humans, on the whole, are pretty predictable. We are all born with that same gambling bug in our heads. It is this bug that causes investors to buy into an investment at the top and sell at the bottom. It's what is behind the tendency of some to ride an investment down into the cellar, when the should have cut their losses and sold after the investment broke down and reversed it's trend. And this bug, is precisely, what causes people to invest in ridiculously risky stocks in the quest for that big pay off.
These are the reasons that most people new to trading fail. It is a built in liability that all successful investors have learned how to deal with. They each may have a different story on how they manage these damaging tendencies. I say manage, because you can never completely divorce yourself from this bug. Nor should you want to. It is also this bug that forces you to accept some risk. And as the Man says " Rate of return is directly proportional to the level of risk". It is in controlling risk, where you must concern yourself.
I recently went to Laughlin Nevada on a gambling excursion with some friends. And I set aside some money to lose and went in to enjoy myself. In retrospect I didn't really enjoy myself because the whole concept of it ran counter to the psychology I have trained myself to vanquish.
But I dutifully went on and plugged my money into the machines just to continually have them light up, sing me a tune and flash a sign to anyone watching that I am a loser. It wasn't until later that day, when checking in on some trades that I was working, that it hit me. I had a trade that was paying off nicely as I had know it would. The amount of money in the trade, was 10 times that which I had set aside to loose gambling and the amount it returned would have made all my friends jealous if I had won it gambling. This was definitely more fun and much more rewarding than the casinos.
I had been watching my cash slowly disappear down the casino hole and it bugged me the whole time. In contrast I had scarcely even considered the trades I had working in the markets. It was because I had controlled my exposure to the markets. I had an exit strategy, a defined price target and an acceptable risk/reward scenario. My exposure to the casino, on the other hand was out of my control, the risk/reward scenario was all in their favor and my only exit strategy was to not loose any more money than what I had set aside for gambling.
I just kept hoping, as I looked around, that all these people were enjoying this casino that I was financing.

JT