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Investing and Emotion

❝The investor's chief problem - and even his own worst enemy - is likely to be himself.❞ -Benjamin Graham

I’m out on a walk with my dog Bingo. We generally walk in areas where she doesn't have to be on a leash, and today is no different. As I walk in a straight line, Bingo spends her time exploring. She lags behind for a while before running up in front of me to see what's ahead. She spends some time over to the left looking for critters and then heads off to the right side to investigate what other dogs have been here.

We are heading to the same place, of course, but we take a different path to get there. I walk in more or less a straight line to complete the loop that we are on. Bingo walks more than twice as far as I do once you account for all the zigging and zagging that she does. Ultimately, though, we finish the loop at the same time and in the same place.

If, at the start of our walk, you wanted to know where we were heading, the smart play would be to focus on where I'm going. The path I'm on is quite predictable. Trying to figure out where we are going by tracking Bingo's path wouldn't be very helpful to you.

Imagine, though, you were broadcasting my walk to the public and wanted to make it more exciting. Your show would focus on Bingo. You would focus on where Bingo has been, where she is now, and have a team of experts try to predict where she will go next. Doing this might help you sell some ads, but it does nothing to predict where Bingo will go. Bingo's path is noise, while my path is the signal.

Such is the case with investing. Shows would be pretty boring if they focused on the signal. Focusing on the noise manipulates your emotions, and by having your emotions manipulated, you're more likely to tune in again. But it's not good for you.


It's important to differentiate between investing and speculating. Investing is for the long run. When you invest, you put money aside to be there for you a long time from now. You make no predictions about the direction of the prices of your investments. You make no predictions about when to get in or out of your investments.

By contrast, speculating is trying to move in and out of your investments at the appropr