I read a VERY interesting article on Reuters this morning about emotions and investment returns.
The opening salvo stated, “…hot-headed stock investors make better decisions, a study in the Academy of Management Journal showed.” (My guess is “hot-headed” is a poor choice of words.)
It seems that the original study suggested that stock investors who had strong feelings and listened to their feelings, did better. Acting out as a “hot-head” is probably not the best ethos or manner of behavior, unless of course, the trader likes to feel what he feels when he’s “hot headed.”
I have not read the entire study, but I’m working on getting a copy of it to review for a trade publication.
Myeong-Gu Seo of the University of Maryland and Dr. Lisa Feldman Barrett of Boston College, the authors of the study found that “the greater the average intensity of an individual’s feelings, the higher their investment returns.”
IMHO, I don’t think that means flying off the handle as the anonymous Reuters author suggested. A trader can feel his feelings of anger, but not lose control. When I think of one becoming or acting “hot-headed,” it does not conjure an image of someone who is in control.
This may be evidential in why some traders follow computerized trading models that derive entries, exits, and position sizes, so that the trader can still feel their feelings, but not sabotage their trading by doing so.