Ten Commandments for Investors (Part 6)

“Do not murder” seems pretty straightforward. How does this help us invest?

On the face of it, the sixth commandment couldn’t be more simple: murder is a universal human prohibition. But understanding the context is the key to applying the text. At the time of the Exodus—when the Ten Commandments were given—Israel was a tribal confederation. They may have all traced their heredity back to a single ancestor—Jacob, or Israel, Abraham’s grandson—but their real loyalty was to their closest family members. In a pre-literate society, close relatives are often the only people you can trust.

In such a situation, mistakes and misunderstandings can get magnified until one party takes offence and violence breaks out. Then a blood-feud develops between the families, and the nation may be riven by civil war. This simple prohibition keeps people from letting their emotions take them somewhere that’s bad for them and the whole society.

In the same way, investors need to be ruled by their heads, not their hearts. When we make emotional decisions, apart from the analytical support needed to back them up, it’s likely that we’re just following the fashions of the day. And that’s rarely a profitable strategy. At best, it allows you to ride a trend for a while. But usually, once a trend is identifiable, the forces are in place to reverse it, leaving you holding the bag.

Furthermore, the investment world is littered with folks who fell in love with a stock, or have some behavioral bias for or against an approach. But money has no politics, and a stock doesn’t know you own it. It’s a mistake to fall in love with something that can’t love you back.

The sixth Commandment says we should keep our emotions in check. For investors, that’s a discipline that will never go out of style.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-09-09T15:59:06+00:00 June 27th, 2012|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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