Thursday, June 30, 2016

Second Guessing

To close the loop on my Brexit posts you would think I would be very happy.  I thought that the market overreacted.  To attempt to profit from that belief, I took a large long position in US equities after the initial drop.  The market did in fact bounce back and I covered at a tidy profit.  So I should be very happy, right?  Here once again is where the insidious psychology of investing arises.  In fact, I turned out to be "righter" than I gave myself credit for. As the chart below shows within six days the market had rebounded almost fully from the Brexit collapse.  But I profited from only part of the bounce back because I covered early.  My rational side says you made a good choice be happy and forget it.  But my emotional side continues to second guess.  This second guessing is the final aspect of what makes investment decision making so psychologically difficult.  Even when things go well, they could have gone better.  So don't feel bad if you second guess.  Most everyone does.  Just try to prevent it from guiding your investment decision making.

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