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Mind Games with Your Stocks (Part 1)

28 January 2008 - Features - Editor

It is widely known that psychology plays pivotal roles in most stock market transactions. Some of the most successful stock brokers capitalize on the illogical fancies of investors, and may even be party to spreading bits of information that lack substantial bases. What about powerful executives, and hands-on owners who have inherited controlling stocks? Can they become victims of delusions when hostile moves take place in a stock exchange? Is arrogance a danger as ideas that seem profitable at first, turn sour later? This should not concern us if someone else’s private equity is at stake, but are you willing to stake your capital to serve someone else’s false pride?

There are two primary steps on which all stock owners can insist, to reduce chances of hearts ruling executive heads. One is to put qualitative arguments aside and ask for Pay-back periods, Net Present Values (NPVs), and Internal Rates of Return (IRR) instead. These global parameters of all financial planning, coupled with Sensitivity Analysis, will put sound reason back in the driver’s seat whenever your stocks are involved. Most investment analyses are made over the plan period of a decade, so long term stock investors will also insist on actual figures versus projections.

Emotional Intelligence in Building Stock Value

Stock investment analysis is not entirely a matter for concrete logic, the importance of numbers notwithstanding. Some new thinking in the business management world relates emotional intelligence as an important skill in business operations and functions. Perhaps it is relevant for stock investment as well. Building harmonious relationships can yield durable stock value, whereas some aggressive competition may be at the costs of small investors who hold minority stocks. Rich executives and wealthy investors may not worry about adverse stock price trends in response to aggressive moves, but holders of small numbers of stocks can be hurt badly in financial terms.

The media, which thrives on controversy, may intentionally stoke some fires of competition between business rivals. It has become common for some journalists to plant stories and shows based on flimsy facts, specious parts of statements, and perhaps on mere speculation as well. While this gains audiences for newspapers and TV channels, it tends to harm the financial interests of serious stock investors. It is also the reason for credit rating agencies generally downgrading overly ambitious companies. Just as stock market Gurus maintain low personal profiles, so some of the best corporations focus on their brands rather than on celebrity figures in their structures.

Mind Games with Your Stocks (Part 2)

 


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