Using Twitter to Predict the Stock Market

Yes, we do this in our Fund.  And we sell this data to quants at http://www.marketpsychadvisor.com/.

My inbox has been filling up with articles about using Twitter moods to predict the stock market and this New York Times overview.  This strategy is effective for trading.  We know because we've been using these techniques in our own Fund:  http://www.marketpsy.com/.

Most revolutionary is that we can predict collective human behavior by monitoring conversations and expressions.  That's ground-breaking in itself and speaks to a forthcoming transformation of economic forecasting.  We've already seen psychologists and behavioral economists advising economic policy makers.

The applications of this go much beyond stock market forecasting. You can also predict consumer behavior - shopping and spending and risk-taking in general. And of interest to corporations, you can use mood data to predict what types of products comsumers are willing to buy (and thus what they should display).

For our fund we scan text data including news media, social media (chat rooms, blogs, and twitter), SEC filings, and executive commentary (interviews and earnings conference calls).  In all we track 240 psychological variables in various forms of granularity.  We've got data back to 1997 for social media, and we've been trading these strategies since we launched our Fund (the MarketPsy Long-Short Fund LP) on September 2, 2008.  And we have a great track record with low volatility.

Lest you doubt that this works, consider a more familiar scenario:  You had a bad day at work.  When you get home, everyone there seems so inappropriately upbeat.  So you maybe sulk a little, slam a door, say something rude.  You're acting out your unconscious emotions, and by definition you don't even know it.  How you were feeling - your irritation at work - changed your behavior.  And in the markets, little bits of news and information change collective behavior all the time.  My book Inside the Investor's Brain discusses this phenomenon in detail, and more for the layperson is our book MarketPsych:  How to Mange Fear and Build You Investor Identity.

We've got more information about our Fund available to accredited investors.   Also please see our charting service at marketpsychadvisor.com

Best wishes,
Richard L Peterson MD
richardpeterson - AT - marketpsychadvisor.com

The MarketPsych Bubble-ometer: How To Know When There is a Market Bubble

I read a recent WSJ article on predicting bubbles.  Turns out there are many forecasting techniques from psychoanalysis to econometrics, but none is widely accepted.  I'd like to throw my hat in the ring here.

We've got our own technique for predicting bubbles, which naturally I think is the best :) 

As you may know, we're monitoring online conversations about stocks, and we're able to parse what people are talking about and their sentiment.

Here are our assumptions: 
1)  When investors (traders) are speculating, they are aiming for capital gains.  They want an appreciation in the value of the shares (or decline if they're a short-seller).  This focus on gains and losses is as true of "day-traders" as it is of "house-flippers."  Such speculators talk about stock prices and their likelihood of going up or down.
2)  When investors are investing, they are concerned with a business' viability, valuation, and its income - dividends, rents, cash flows, earnings, etc...  Investors talk about accounting issues and fundamentals.

Based on the dominant themes in online conversation (price speculation versus fundamentals-focus) we've created an index (the MarketPsych Bubble-ometer) to see which of these two groups is dominant in the markets.  An image of this index for the U.S. stock market is at the top.   It shows that based on this measure we are not currently in a speculative bubble for U.S. equities.

We've also got Bubble-ometers for individual market sectors and industries.  In a few weeks we'll post charts for the most and least-bubbly sectors and industries.  (Gold, anyone?)

If you avoid a market during a bubble, you can rest assured it will eventually fall below the current price. If you know a market is in a bubble, you may want to buy the momentum, betting on further inflation of prices (and your wallet).  It's a dangerous game, along the lines of the greater fool theory.

Happy Investing!

Richard Peterson
rpeterson - AT - marketpsych.com

Declining Trust in the U.S. Financial Markets

"I'm not upset that you lied to me, I'm upset that from now on I can't believe you"

Friedrich Nietzsche

Below I've posted a chart of the levels of trust expressed by investors chatting in online financial social media since 1998.  As you can see, the level of trust has dropped 33% since 1998 in a series of steps.  It has not made a real attempt at recovery.

Economic studies have found that levels of interpersonal trust in a society are related to rates of economic growth.  (Others are less confirmatory).  In any case, it's fairly intuitive that we are less likely to take business risk if we don't think we can trust the person we are entrusting to grow, manage, or invest our money.  So the decline in trust we've measured is problematic for the future prosperity of the U.S. 

So the next question is, how can we restore trust in the financial system? 

1.  First of all, we've got to stop the bleeding.  We need fewer Madoff's, Jeff Skilling's, et al through better oversight and regulation of the financial system.  The Dodd-Frank bill addresses some of the relevant areas. 

2.  We've got to change incentives for economic players to violate trust.  For now, most financial firms use an annual bonus system.  This system incentivizes taking high short term risks with OPM (other people's money) in order to get a higher annual bonus for the individual risk taker.  This incentive system should morph into a longer term, stake-driven protocal.  Otherwise we'll bubbles rising again and again fueled by individual incentives.  Consider how many people have been punished for making bad bets during the financial crisis?  (None as far as I'm aware, and they've all kept their nice bonuses from pre-2008).

3.  We've got to punish breaches of trust (legal enforcement).  When the legal system enforces arbitrary, irrelevant, or outdated laws, or when it hands out punishments that don't do justice to the actual suffering caused, it loses credibility.  Recall that Madoff remained free for many months before his trial while the case was prepared.  To most victims, that appeared as a failure of justice. 

4.  A shared social mission.  Seeing others selflessly work towards a goal that benefits others restores trust.  Historically major wars and religious revivals served this function, but it's also possible through leadership (Roosevelt with the WPA and Reagan's "morning in America" were able to create such a sense in much of the population).  Perhaps shared sacrifice towards cutting the budget, educational reform, or healthcare overhaul could do it?  I don't know - once distrust is used as a political tool, then we're in a different stage of the game.

Certainly, there is a social devaluation of trust that is seen in recent politics.  This may be a by-product of new forms of communication and media.  When Elliot Spitzer becomes the host his own show on CNN after prosecuting many financial leaders as attorney general of NY (allegedly unfairly) and then being caught breaking the law systematically himself while Governor of NY, what does that say about our assessment of character versus desire for entertainment? 

Whatever the solution, I imagine we'll know the harbingers of returning trust when we feel them.  For now, the erosion will likely continue as more and more municipalities, states, and sovereigns come looking for debt relief, and mistrustful investors balk at bailing them out.

Richard Peterson M.D.
rpeterson "at' marketpsych.com

MarketPsych Honored as a Top Book for 2010

MarketPsych is proud to report that in Kiplinger's Personal Finance December issue, MarketPsych: How to Manage Fear and Build Your Investor Identity was honored as one of the Top 3 finance books for 2010.

Top 3. And # 1 of its kind.

We're right next to Michael Lewis's latest work. So if books had elbows, our's would be rubbing with those of some pretty darn good company.

And though we can't promise that MarketPsych will be made into a major motion picture anytme soon (mainly because of Rich's bizarrely rigid insistence that he be played by George Clooney) - we can promise that if you read the book and engage in the exercises therein, you will a better, smarter investor.

In fact, we don't consider it a book, as much as a (highly entertaining) psychological tool kit that builds the skill you need for long term wealth accumulation.

It's available here.

Enjoy. And happy investing.

-Dr. Frank

AAPL selloff and Solar Stock slide

Our short-term prediction of solar-stock-peaking has come true, with the solar ETF (TAN) dropping from $9.22 to $8.42 (-8.7%) since our prediction on Thursday morning, 3 trading-days ago.

We also noticed the same "Buy on the Rumor and Sell on the News" effect with AAPL today. Despite "blow-out earnings" that handily beat analyst expectations after the close yesterday, the stock slumped more than the market today, down -2.68% (dropping as much as -6.5% after hours following the earnings release).

How would you have known that AAPL investors were excessively-optimistic (besides the obvious mania of Apple-true-believers, who might not actually own the stock)? Glad you asked - our Stock Sentiment Cluster showed that excessive optimism going into earnings. Interestingly, there was heavy Call Option writing (selling) going into earnings yesterday as well, indicating large institutions hedging the risk of a disappointment.

Happy Investing!
Richard

Solar Stock Slide - Buy on the Rumor and Sell on the News

We've blogged about the "Buy on the Rumor and Sell on thw News" pattern in stock prices before (in fact, I published a paper about it in the Journal of Psychology and Financial Markets).

At the moment we're seeing the peaking and beginning of a slide in Solar Stock prices (examples include ESLR and SOL). The solar ETF is TAN, and it is likely to start sliding right about now. These stock prices rose on speculation of renewed interest in the solar sector due to the Solar Power International conference starting in Los Angeles today and Solar Day on CNBC yesterday.

Happy Investing!
Richard
rpeterson-AT-marketpsych.com

MarketPsych on Public Broadacasting

MarketPsych has been busy behind the scenes, and sometimes, in the scenes - as in these recent appearances on Nightly Business Review segment "Your Mind and Your Money" with Tom Hudson and on NPR's Marketplace Money with Tess Vigelund which airs this weekend - in an effort to promote their new book. Lots more to come!

Using Sentiment to Predict Reversals

We all know the contrarian mantra - "buy low and sell high." But we've also experienced the low go lower and the high go higher - and that hurts.

So at MarketPsych we decided to figure out whish stocks are likely to reverse, and which aren't. It turns out that spikes in sentiment must be correlated with the price action for a reversal to be immminent.

We discovered this phenomenon 5 or 6 years ago, and over the past two years we've been trading these reversals at MarketPsy Long-Short Fund with positive results (DISCLAIMER: this is not a solicitation).

Now we've started offering a tool to help others identify contrarian set-ups that are likely to be profitable on our beta website (location to be divulged in 2 weeks).

You can see some interestign setups this morning, pre-market, that were already extremely profitable by the close of the first day.

HL is a mining company whose stock ranked as the most overbought using our sentiment tool:


The chart depicts relative sentiment (called "Positivity") in social media conversations plotted against the past ten days' price change. As you can see in the chart, HL was the most overbought stock this morning. By the end of today the stock was down (-0.35%).

"So what about oversold stocks?" you ask. Excellent question. The two most oversold stocks happened to be in the technology sector. Their charts are depicted below. Both of them are up today, with ORCL up (+3.7%) and SNDK up (+5.0%).




As you can guess, these are likely to be short term price moves, and sentiment reversals tend to be short-term phenomena (as documented in many academic papers). Nonetheless, it's interesting to see such a clear example today.

Happy investing!
Richard

Here We Go Again

Once again, we see the word "unexpectedly" being used in conjunction with a monthly move in consumer sentiment/housing/jobs reports.

I'm not sure what it would take to banish this word as it pertains to short term variance in noise-laden indexes. The article features this nugget re: Consumer Sentiment: "Economists surveyed by Bloomberg News had predicted the index would rise to 75 this April (preliminary)from 73.6 in March (final). The Index was at 73.6 in February, 74.4 in January, and 72.5 in December."

In order for something to be unexpected, there needs to be a sufficient degree of expectation.

Is that warranted for the monthly number on consumer sentiment?

You might as well argue how many Angels on the Head of a Pin or How many licks to get to the center of a Tootsie Pop
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Statistical navel-gazing of this sort isn't merely silly as I mentioned here, it's counterproductive. It draws people into a pattern-seeking mode and into a destructively short-term focus that causes bad decisions.

Do yourself a favor. Resist it.


-Dr. Frank

Investing and Trading Psychology Condensed to 31 Precepts

Over the years I have created and collected the following pithy "precepts." These precepts are trading and investing guidelines that give a compass heading to trading integrity.

I offer them to you in their raw form. Some may make sense, others not. Please feel free to question, challenge, refine and edit with your responses.

1. We are who we are and we start from where we start
2. Each of us brings unique strengths to the markets
3. Every morning we agree to play as delighted beginners
4. Reality Pays. The more our minds model the market, the more in synch we get
5. We build on our strengths and manage everything else.
6. The outcome we have is the outcome we want
7. If what you are doing isn’t working over and over again, re-examine your internal models
8. Our internal process is more important than anything else because it drives everything else
9. You have the resources to improve your mental trading game. Coaching just helps find them
10. We begin our trading practice slowly and build it with flow and grace
11. Lean into fear. Fear is a primary cause of failure
12. If you are frustrated with the markets, that means they aren’t following the internal model you have projected on them
13. We increase the level of our awareness rather than the intensity of trading
14. As we expand our awareness, our interventions will happen sooner and be more creative and effective
15. We respect ourselves and celebrate our profits no matter how large
16. If we can experience a new behavior for a moment, we can experience it for a minute, an hour, a week, a year.
17. Change happens when we experience a new behavior that is aligned with who we are, feels emotionally satisfying in the moment and takes us to where we want to go
18. Avoidance is buying pain on credit with interest
19. If self-criticism made us trade better we would all be rich
20. We allow the markets to breathe through us
21. The markets are messy, our information is imperfect, our systems will fail and we can still make money
22. All trading systems are successful in some markets, all trading systems will eventually fail in all markets
23. The markets don’t care about you or your position
24. We seek the practice rather than the result
25. Learn about yourself with the delight of an anthropologist finding a lost tribe
26. We make internal maps of the market, but our maps are always distorted
27. Our negative responses are created by our maps, not the market
28. By changing our map, we change how we respond to the markets
29. All our trading errors have an ultimate positive purpose or intention
30. There is no “failure” just feedback
31. You have all the resources you need, although some may be out of your awareness

Market Beer Goggles: Part II, Ethanol Stocks

(For Part 1: Click Here)

Market Beer Goggles: Part II, Ethanol Stocks

Three of the bigger players in Ethanol were VeraSun Energy Corp (VSUNQ), Aventine Renewable Energy Holdings (AVRNQ), and Pacific Ethanol (PEIX).

It is difficult to locate good charts of VeraSun and Aventine because both have declared Chapter 11 bankruptcy. Pacific Ethanol is technically solvent, but had its four operating subsidiaries file Chapter 11 petitions. Excellent summaries of what happened can be found here and here.

Let's take a look at a chart of PEIX. You will notice that in the week of May 9th, 2005, PEIX was at $10.60/share. In one short year, during the Beer Goggles Stage of acute intoxication and amorousness, it shot up to $42/share in the week of May 8th, 2006 (more than a 300% return). By the following year (May 7th, 2007), Pacific Ethanol was down to $15.39/share. A look at the volume (at the bottom of the chart) shows that the heaviest buying was on the way to the peak while PEIX was in the 30s. The comparative lack of volume on the way back down to 15 tells you that... a lot of poor people got stuck holding PEIX. And if that $15 price seemed to be "too low to sell". Consider this; by March of 2009 your $15 would be worth 23 cents.

What happened? Why did people break out the beer goggles and leer at VeraSun, Aventine, and Pacific Ethanol? What were they drinking? (My bet is tequila). In fact, several social/emotional factors were in play, danger signs for those who stayed sober enough to recognize them.

It Was the Next Big Thing: Investors are always looking for the "next big thing". The prospect of discovering the next Apple Computer while it's still being run out of a garage is one of the most enduring investing fantasies. Part of it is rooted in the almost universal desire to A) Get rich, and B) Not have to work for it. (This is the entire basis for the massive Lottery business). A new fuel that can support our energy needs and be grown in your back yard is indeed a compelling story, one that captures the imagination. It almost seemed too good to be true.

It Made People Feel Good: In addition to being a great story, the thought of ethanol appeals to our moral/patriotic sides. Regardless of what you think of the state of Anthropogenic Global Warming research, we all want a greener Earth. Only Bond Villains (and possibly a subset of hard core Raider fans) are evil enough want to choke the life out of the planet. To support a plausible, if perhaps specious case, against carbon-unfriendly fuels is only natural. Plus energy independence (or at the very least independence from people who hate us e.g., Hugo Chavez, Mahmoud Ahmadinejad, Saudi Wahhabists) are things most of us are actively looking to support.

Non-Investors Loved It: Ethanol was one of those rare investments that had people talking who knew nothing about investing. At, George Keeley, (my local) when I would tell people what I do, their eyes would light up - men and women alike; "Ooh! Tell me, what do you think of Ethanol stocks! Are they a good buy?" and "Do you have any stock tips? What do you think of ethanol?" As Bernard Baruch famously, if apochrophally, said before the Great Crash of 1929, "When the shoe shine boy starts giving you stock tips, it's time to get out of the market." In fact, non-investors chatting up stocks is one of the most tangible and reliable indicators that hype has eclipsed reality.

In the midst of all these danger signs came the greatest catalyst of all; the stocks took off. The cycle of hype > price gain > hype > price gain was a self-perpetuating motion machine.

People were as figuratively "drunk on ethanol" as if they were literally drunk on ethanol. That's why when we find ourselves "hooked on a feelin'" and "high on believin'", we need to order a cup of coffee, talk to that buzz-kill friend (or financial professional) to give us an alternative opinion and bring us back to reality.

There were/are points in favor of investing in Ethanol stocks. And our point here is not to put down companies or industries. There were; however, some powerful arguments against it:

• The Brazil "success story" is an apple and we're an orange. Ethanol works better in Brazil because they make it from sugarcane, a much more efficient source. Also, Brazil has more available farmland and cheaper labor costs than we do. The US does not have these advantages.


• It's corrosive. Ethanol can't be transported via traditional pipelines, as can oil or gas. It has to be shipped in trucks and trains with specially lined containers. Some claim this can be rectified in the US. At this point; however, it hasn't.


• In the case of Pacific Ethanol, as noted in this article, California is "too far from the corn". In order to keep costs down, you want the corn supply close to the ethanol plant, 50 miles at most. The Golden State is a long way from the Hawkeye State.

Did people hear these arguments, (and many others) against these stocks before they stampeded in? Did they give full weight to the risk of investing in ethanol or merely the rewards?

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Some people point to Bill Gates's investing in PEIX as evidence that it was a sound bet. But did those people bother to factor in the opinion of Warren Buffet (an actual investing professional), when he said this below:

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"Charlie Munger and I do not know enough about the business to evaluate it. It depends on government policies and a lot of other variables we're not good at predicting. It's also a very hot area for investors right now, and we don't like looking at things that are hot and easy to raise money for. Generally speaking, agricultural processing businesses have not earned high returns on tangible capital. Ethanol could prove an exception, but I'm not sure how you gain a competitive advantage with any particular ethanol plant."

No. Probably not. When you're dancing with the lampshade on your head, the world - and all the people in it - look beautiful and bright. You don't want someone harshing your gig. That's why it is so utterly important that we invite some wet blanket, Johnny No-Fun to do just that.

Which brings us to MarketPsych Maxim that we drive home to our clients; Never commit money to a stock until you have heard (and digested) the best arguments against it.

To be fair to ethanol stocks (who are still in business), they have rebounded since their lows. PEIX has gone from under a quarter a share up to as high as $2.75/share ($1.38/share as of this post). Here's an article that makes a case for the comeback. But that is cold comfort to the beer goggling investors who, when the hangover set in and their bleary eyes fluttered open, found that their investment that looked so hot the night before looked anything but in the clear light of day.

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Beware the Market Beer Goggles. Know the warning signs. Hear the best case against your case. And when you're feeling really, really excited about a stock, for goodness sake, order a club soda.

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Happy Investing.

-Dr. Frank

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MarketPsych is the original Investing Psychology Consulting Firm. We have been doing talks, keynotes, trainings, workshops, coaching and consulting in the field since 2002. Our clients include institutions and individuals in all areas of the financial community. Contact us at [email protected] for more information on how we can help you.

MarketPsych Presents: Market Beer Goggles, Part I

College, 1992: A Flashback

It happened late at night. It always happens late at night. The keg was kicked and the host was reduced to breaking out a bottle of Peach Schnapps that had been in the back of the liquor cabinet since the Nixon Administration. What. A. Party. You danced a little. Drank a lot. And you spent the last hour on the couch canoodling with this really hot girl (or guy as the case may be). You asked your model-esque romantic interest if he/she wanted to find some place a little more private...

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Yep. It was a pretty cool night. That was until you got the party photos back. Looking at them now, you see that something is strangely, terribly amiss.

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"That's definitely me on the couch", you think, "I have the matching Guinness stain on my Polo shirt to prove it. But who in the name of Extreme Makeovers is that decidely un-hot person sitting next to me?!" And, follow up question, "What did I do? (gulp) Please tell me it's not what I think it is!"

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Beer Goggles: noun, A metaphorical set of "eye-glasses" worn after excessive alcohol consumption that makes otherwise unattractive individuals extremely desirable.

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Back in college, it was known as Beer Goggling. And for most of us college is where it stayed. We all get older, and generally that means wiser. We learn to make better choices, to channel our impulses. As we mature our lifestyles change, we settle down. But while we don't break out "The Goggles" at parties anymore, we sometimes break them out in "The Market".

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How does it happen? What is this intoxicating mixture that distorts our judgment, lowers our standards, and causes us to hook up a dreadful, "oh-my-gosh-I-did-what" stock. It's a pretty simple recipe:

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Market Love Potion #9

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Mix:

2 Parts Media Hype

2 Parts Greed

2 Parts Impulse Control

1 Part Peer Pressure

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Shake well. Serve over crushed ice. Garnish with lemon peel.

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Welcome to MarketPsych's new semi-regular feature, Beer Goggle Stocks! Where we use hindsight, and the harsh, wince-inducing light of day to illuminate those times we became intoxicated by a stock or sector and made a regrettable choice that could have been avoided if only we were thinking clearly.

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We will highlight a number of these investments. Analysis will include a "before" and "after" picture, a break down of the emotional/cognitive/social factors that led to misjudgment and an outline for how to avoid such mistakes in the future.

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Like the old T-shirt, "Friends Don't Let Friends Beer Goggle".

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And at MarketPsych we like to think of ourself as your investing friend. The responsible one who takes your car keys, orders you a cup of black coffee and walks you around the block when you're not thinking straight. So if you've ever hooked up with a hot stock only to later to see it was a dog... stayed tuned for part II.
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Coming Soon: Market Beer Goggle Part II - Ethanol, I Promise I'll Love You in the Morning.

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In the meantime, happy investing.

...

-Dr. Frank Murtha

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MarketPsych is the premier Investing Psychology Consulting Firm. We have been doing talks, keynotes, workshops, training, coaching, consulting in Investing Psychology since 2002. Our clients include individuals and institutions in all areas of the financial community. Contact us at [email protected] for more information on how we can help you.

Do You Like Scary Movies?

You're watching a movie - a thriller actually. You just don't think of it that way.

You laugh at the happy parts. Lose interest a bit during the slow parts. And occasionally, when there's a plot twist... it scares the living hell out of you. The funny thing is you actually know how it's going to turn out in the end. But that doesn't stop you from "getting into" it.

The movie is, "The Market" and it show times are M-F, 9:30 AM through 4 PM (EST).

Okay. It's not technically a movie. Nobody's selling $8 popcorn and it doesn't have Ben Affleck in it or anything (thank God), but a movie is a good way to think about your investments from a psychological perspective.

Take James Bond movies, for example. When we watch a Bond flick, we know what we're getting into. He's going to use some cool gadgets, drink a martini, save the world, "get the girl", etc.

But at certain times during the film, there are moments in which 007 is in mortal peril (inordinately involving buzz saws, lasers, and exotic predatory animals). If we've been following along, if we're "into it", we experience an unavoidable emotional reaction - anxiety, or as the movie business euphemistically dubs it, "suspense".

We can't help it. We experience this supense because we follow the story not just with our eyes, but with out brains, and that means we follow it on an intellectual and an emotional level.

In fact, it's almost as if our emotional brain and our intellectual brain watch the movie on a couch together and during the suspenseful parts, wrestle for control of our head.

Sometimes the conversation looks like this. (Watch the following classic clip from Goldfinger to really provide the context.)

Emotional Brain (EB): HOLY CRAP! THE LASER IS GONNA SAW HIM IN HALF! THERE'S NO WAY HE CAN ESCAPE!!

(Note: The Emotional Brain not only speaks in exclamations, it uses all "caps".)

Intellectual Brain (IB): I say, get a grip, lad! It's a half an hour into a 3 hour movie. He'll be fine. Stiff upper lip and all that.

(Note: The Intellectual Brain is not only the voice of reason, it has a 19th century British accent.)

EB: BUT, BUT! HE CAN'T REACH HIS MAGNETIC PEN KNIFE!!! HE'S SCREWED!! AAAUUUGH! I'M HYPER.. VENTILATING...!!

IB: Yes, yes. Dire straits, indeed. But we know full well that Daniel Craig signed a 3 movie deal. Can't just dispatch him in the first one, now can we? Wouldn't be cricket!

EB: ARE YOU NUTS?? ARE YOU BLIND?? THE LASER IS ALMOST UP TO HIS - OH, MY GOD, I CAN'T EVEN SAY IT! MAY DAY! MAY DAY! MAY

IB: - All right, all right, lad! I suppose a bifurcated John Thomas is more than you can bear. No talking you out of it, this time. I'm going to send a neuro signal to the hands to cover your eyes... now. And hand me those pretzels, old boy. You're getting crumbs all over the floor and I just had it cleaned yesterday, don't you know.

EB: SORRY!!

Now, it should be said, we have enough data on James Bond and on the major market indexes to know what happens in the long run. But when we're watching the movie, we're not in the long run. We get drawn into the emotions of the moment and we struggle, sometimes in vain, to restore a big picture perspective.

The above conversation is essentially what our psychological defense mechanisms look like when we watch a movie or when we watch The Market. The tactics are certainly the same. Get us out of the "moment" (short term) and refocus on the big picture (long term). Supplant emotion with reason, fear with facts.

And sometimes when we can't reframe from a short-term to a long-term perspective, we simply cover our eyes (i.e., stop watching). It's an excellent last resort tactic that is underutilized.

So enjoy your thrillers, if that's your thing. And enjoy your Market watching. But remember what it is your watching, and retain that ability to pull yourself up out of that short-term emotional tailspin. Because you will get draw in and it will happen without your awareness (just like in a movie).

And if you insist on watching scarey movies, in the name of Freddy Krueger... do NOT watch them alone.

Happy investing.

-Dr. Frank

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MarketPsych is the premier Investing Psychology Consulting firm. We do talks, keynotes, workshops, training, coaching, consulting with out clients. They are consistently rated as highly educational, professionally valuable, and fun.

Cashing in in 2010

A link to a fine article written by Bob Frick over at http://www.kiplinger.com/ on poker and investing - specifically how working on the former can greatly improve your skill in the latter.

The article features insights from MarketPsych's Frank Murtha, as well as from Daniel Negreanu, which - if you're a poker fan - is always at treat.

Fun and interesting stuff.

MarketPsych offers advanced coaching/seminars to traders, financial analysts, financial advisors, money managers as well.

If you want to get better at your game, give us a shout at [email protected] for more information.

Cheers. And good luck in 2010.

Dr. Frank Murtha