Friday, June 19, 2009

Can we invest relying on gut feeling?

My recent post of "can you sleep soundly at night" is resting on a theory of trusting your gut. What is gut feeling ?
"an instinct or intuition; an immediate or basic feeling or reaction without a logical rationale" - Wiktionary


Great trader like George Soros relying a lot on instinct to complement his theoretical framework.

“I rely a great deal on animal instincts,” he wrote in his 1995 book, Soros on Soros. “When I was actively running the fund, I suffered from backache. I used the onset of acute pain as a signal that there was something wrong in my portfolio. The backache didn’t tell me what was wrong – you know, lower back for short positions, left shoulder for currencies – but it did prompt me to look for something amiss when I might not have done so otherwise.”


His body will warn him of danger ahead, though it might not know very specifically what went wrong, he just know something is wrong. He will search very hard of what could possibly goes wrong and retreat way before the crowd gets it right.

A new investor should not and never use gut feel because their perception has not sensitized with enough experiences yet. Experienced investor that accumulated with too much knowledge about markets, companies, crowd psychology, economic indicators, etc may want to use their gut feel [to] break analysis paralysis. What do you think?

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