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Driving Emotions From Your Investment Process: A 12-Step Program

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For many years, I conducted an AAII Stock Analysis seminar in which I presented a variety of techniques for analyzing and valuing stocks.

Beyond presenting specific techniques, I also discussed ways to remove emotions from a decision process. Now that I manage money professionally and have delved into the ever-growing body of behavioral science research, I am more convinced than ever that ruthlessly driving emotions from stock-picking decisions is essential to generating superior returns. In fact, if you don’t, you cannot outperform.

There is now a large body of research showing that investors depend on emotions and anecdotal information when making decisions. You are no doubt aware of this and are familiar with the resulting cognitive investment errors. There have been numerous articles dealing with how investors can avoid such errors and, as a result, do a better job of managing investment portfolios.

Unfortunately, industry professionals apply techniques and put policies in place that encourage investors to continue making emotional decisions. So even if the investor wants to drive emotions out of the investment process, the industry is set up to encourage them to do otherwise.

To help you make this transition, I present a 12-step program to show how to ruthlessly drive out emotions and thus make it possible for you to make superior investment decisions.

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