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6,362 posts
msg #50678
Ignore TheRumpledOne
3/26/2007 2:52:56 AM

The Emotional Attachment to Money Perspectives for the week ending March 18, 2007

On money, the Bible tells us:

"For the love of money is a root of all kinds of evil." 1 Timothy 6:10

Ayn Rand, in her book Atlas Shrugged, seemed to respond to this assertion in the following passage:

"So you think that money is the root of all evil? ... Have you ever asked what is the root of money? Money is a tool of exchange, which can't exist unless there are goods produced and men able to produce them. Money is the material shape of the principle that men who wish to deal with one another must deal by trade and give value for value. Money is not the tool of the moochers, who claim your product by tears, or of the looters, who take it from you by force. Money is made possible only by the men who produce. Is this what you consider evil?"

So what does this have to do with trading the stock market?

What is noticeably different between these two passages is the word love. The Bible does not tell us that money is the root of all evil, instead it is the love of money that is destructive. Rand simply argues that money in itself is not the root of evil.

It is the emotional link to money that leads to destruction, and nothing could be more true for investing and trading.

The best traders are those who don't love their money. They consider the money invested in positions in the same way as a 12 year old considers his or her score on a Playstation game. Money is a means of accounting, and not as a means to pursue material things.

The more you care about your money, the more your decisions will be governed by emotion, the greatest enemy of the trader.

Do you make a decision differently if you are making a trade right after suffering a loss? It is easy to want to "make back" the loss on the next trade, and as a result, not follow a disciplined approach. A trade may be working well, and then give an exit signal. However, the trader who has just suffered a loss may not heed the exit signal if the position has not made enough to pay for the initial loser. Emotion has taken a role in the decision to hold the position longer.

Perhaps you have trouble selling your losers. It is common to want to hold on to your worst stocks and avoid the pain of locking in a paper loss. The fear of suffering a loss stems from a love for money.

Instead, we should love the reward afforded by hard work in the stock market. Discipline and emotionless trading will produce money, so avoiding the love for money should be our pursuit.

The stock market is the ultimate arbiter of truth in the economic world. To beat the stock market, you must make better decisions than the masses, for the masses will regress to mediocrity. Another passage from Altas Shrugged is fitting:

"To trade by means of money is the code of the men of good will. Money rests on the axiom that every man is the owner of his mind and his effort. Money allows no power to prescribe the value of your effort except the voluntary choice of the man who is willing to trade you his effort in return. Money permits you to obtain for your goods and your labor that which they are worth to the men who buy them, but no more. Money permits no deals except those to mutual benefit by the unforced judgment of the traders. Money demands of you the recognition that men must work for their own benefit, not for their own injury, for their gain, not their loss-the recognition that they are not beasts of burden, born to carry the weight of your misery-that you must offer them values, not wounds-that the common bond among men is not the exchange of suffering, but the exchange of goods. Money demands that you sell, not your weakness to men's stupidity, but your talent to their reason; it demands that you buy, not the shoddiest they offer, but the best that your money can find. And when men live by trade-with reason, not force, as their final arbiter-it is the best product that wins, the best performance, the man of best judgment and highest ability-and the degree of a man's productiveness is the degree of his reward."

Ask yourself, do you make the best judgments you can? Are you at the mercy of someone more rational and less emotional than you? It is the best decision that wins, and the wonderful thing about the stock market is that you are told every day whether you have earned the reward of good decision making. Lose your emotional attachment to money and find success.

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