Who’s in command? (The Financial Athlete #17)

“I’ll be in charge and you tell me what to do”. — Ao (pastamanvibration)

After a long rally, I was happy to win the point. Others watching complemented me for my hussle, but my tennis instructor was less impressed with who won the point. “Who was in command?” he asked. The instructor read my puzzled face. “Who was in command of play? Who hit the ball deep left then deep right back and forth several times before a drop shot and then back to the baseline?”

“She did,” I acknowledged.

“Most people focus on winning the point. Focus instead on taking command. If you take command, you won’t necessarily win the point but you’ll win games.”

Do you take command of your emotions with investing?

For any stock trading at an all-time low, it is natural for average investors to harbor negative emotions including frustration, anger, and bitterness. It is also natural for them to feel euphoric if the stock price is trending upward at an all-time high. Average investors first and foremost react emotionally to stock price action. In the mind of the average investor, even if the underlying company of the security shows the identical business circumstances (same financial statements, prospects, contracts, et cetera) and the stock trades at an all-time high of $20 their world is like being relaxed on a beach in the beautiful tropical island of Bora Bora in Tahiti, but if it trades at $2 their world is like being trapped in a fierce sandstorm in the Saharan desert.

Smart investors set themselves apart by focusing on intrinsic value and compare this market price. When the market price trades far below than their estimated value of intrinsic value, they pounce. Average investors have no idea how to estimate intrinsic value, or even know what this means.

What’s in command in your mind? Emotions dictated by price action or rational thinking supported by objective research.

“Attitude is a little thing that makes a big difference.” – Winston Churchill

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