I am not advocating investing on pure instinct, nor was I suggesting doing so in my original musings. As a few have mentioned, analysis and experience train the subconscious from which those instincts arise. Feed the subconscious nothing, random noise comes out (at best). Feed the subconscious analysis and thought provoking concepts, very useful results can sometimes emerge … though still mixed in with some random noise. Perhaps experience combined with analytic skill is what permits us to differentiate the valid instincts from the random noise.
Feed the subconscious nothing, random noise comes out (at best).
Not quite. The native subconscious is preprogrammed with survival instincts like fight or flight, decisions that need to be made quickly. I say quickly instead of instantly because footage of animals in the wild often show deadly antagonists circling one another, taking a measure of the situation, I suppose at a far enough distance to be on safe enough ground. In mammals at least, the parents teach their offspring survival skills which are honed by games they play. Humans come to investing after all these skills are in place.
Considered in this light, is it any wonder that we run after winning situations (buy high) and run away for losing ones (sell low)? There is no pre-human equivalent of trading stocks that I know of. Trade and the economy are entirely human phenomena.
laKitKat is a master value investor. She is the founder of the Value Hounds board and winner of several Foolish awards. Her extensive and intensive analyses can be found at Value Hounds. When I read her post I thought to myself, “laKitKat is reverting to form.” I say this because maybe a year ago (I don’t remember the date), laKitKat complained that these analyses were not producing the kind of results that the Gardner brothers promised. Shortly thereafter laKitKat withdrew from the board for a time. I don’t attribute her withdrawal entirely to a loss of faith in value investing but I do think it played an important role. laKitKat, if I’m wrong or off base, please correct me.
To come to the point, I think that “trust pure instinct? Never” was an automatic response of her value investing trained subconscious. Again, if I’m wrong or off base, please correct me.
Actually my absence was more of a flood of changes leaving me zero time to do much except get it done. I moved, quit work and had my elderly and difficult parents suddenly living with me. There was no time to do anything else so investing took a back seat.
I may be misreading the intention of the OP. When i see an investor decide on a stock because they get a good feeling about it, I cringe. After subscribing to stock advisor for a couple of years, I found the lack of information about their monthly picks disturbing and more a touchy feely instinctive pick than a well-researched pick. it put me off. I dropped my sub. There may be a place in investing for a great hunch about the prospects of a business not supported by any rational approach with numbers. I’d put Amazon in here and Marvel maybe possibly netflix. On the dark side though we have a handful of losers that lost because nobody bothered to really understand the numbers and what all the SEC documents were screaming at us. Here we have Sierra Wireless, the late stage of QSII, 3D, and the ever popular Valeant Pharma. Businesses change and not too much TMF time was spent getting a handle on the changing stories much less a good grounding in why to buy initially.
That’s where brain trumps gut. if the numbers are rotten and the conference calls evasive and the business fails to makes sense, you can know that with a fair dose of hard work, number crunching and due diligence. You can’t rely on instinct.
Right now I find it impossible to like much of anything to invest in. Granted my bent is decidedly something that pays me money and does['t require an act of faith and a gut feeling about high growth. Not that I wouldn’t love to find the next Amazon
Look across almost all asset classes and the risks are high and the returns are low.
Stories and story stocks are a wonderful ride but in the early stages they don’t make sense to a value investor and maybe there is a place for instinct about the prospects of an AZ or NFLX or Ulta. I happen to own a few of these bad boys but I did do a lot of number crunching before I even bought these momentum sweethearts
Feed the subconscious nothing, random noise comes out (at best).
Not quite. The native subconscious is preprogrammed with survival instincts like fight or flight, decisions that need to be made quickly.
Here is a more scientific explanation. For our purposes the first seven minutes suffice. The rest is interesting but it refers to other kinds of risk like radiation and nuclear power.
The risk perception gap: David Ropeik at TEDxWaldenPond
