Investing with all Five senses

When it comes to investing, we can look to nature to help us make decisions.  That is to buy, hold, sell or do nothing.

Senses = Sensible
It might sound odd however, I have come to realise that the my senses and how they react to the ever changing information can help to make those sensible decisions.  After all, I am completely responsible for my decisions and it is my decisions that ultimately determine my performance.

Well, this is easy, I am watching the markets each day and the charts tell me a lot.

A perfect example was seen in the past week as the ASX200(XJO) pictured fell from circa 5640 to 5440.  Each day as the Aussie market fell more, the bears were getting louder and louder as their confirmation bias seemed to reach a crescendo.  The ears can tell us plenty if we choose to listen.

It is the actions of management of companies listed which have the most relevance here.  I am usually left with a sour taste in my mouth after management announce a decision I do not think is in the best interest of existing shareholders.  I do not need to be holding shares in a particular company to feel this sour taste.  Two examples come to mind here:

  1. Companies raising capital for seemingly no immediate reason (ie no acquisition on the horizon or just to take advantage of high share prices)
  2. Companies reporting poor annual results after the close on a Friday afternoon

I would say on balance that those who are shareholders in listed business have higher than average IQ.  Management of such businesses taking these actions should know their shareholders are smarter than that….

As an investor who considers that I am buying a small part of the business in the same manner that I would buy the whole business, I would say that speculative stocks have always had a bit of an odour to them.  Spec stocks sometimes remind me of the ‘odorant’ used by the characters pictured in Monsters Inc.

‘Spec’ stocks seem to just move from one fad to the next. In recent memory the ‘hot’ sectors have been uranium, biotechs, software & services, nickel and graphite.  It appears the short term benefit of owning stocks in the latest hot sector seems to favour a few at the expense of many.  The allure of making (or attempting to make) a quick profit on a company which has a very remote chance of ever turning a profit has never appealed to my senses.

I do understand there is a place for speculation just as I understand there is a destination for my weekly garbage collection. At least exploration companies digging holes in the ground for the one-in-a-million chance of finding oil or nickel are employing people to dig those holes. Perhaps when deodorant stocks become speculative, things might change for the better.

This one is counter-intuitive.  Generally, when it feels really bad to buy after a decline, that is the best time to do so.  When it feels too good and there is a cheery consensus, that is often a good forewarning that the crowded side will be wrong before too long.

May your five senses guide you in your investing endeavours!!

This article is published by Dean Mico.

The information provided in this article is intended for general use only. The article is intended to provide educational information only. Please be aware that investing involves the risk of capital loss. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person, nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information herein.

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