A few months ago I was asked by a friend who is a Saltydog subscriber, what my views were on the subject of F.E.I. Well, I had to admit that I was not familiar with the topic, so I had no views at all. Resorting to Google and the article by Rodney Sullivan (CFA) I have now acquired a basic understanding of what is referred to as Financial Emotional Intelligence. The main feature would appear to be the bringing together of our intuitive emotions to run alongside our deliberate decision making process. The disciples of F.E.I. believe that to align the workings of our conscious and unconscious mind will elevate, improve and produce more productive investment decisions.
At The Saltydog Investor we are convinced advocates of Momentum Investing. The algorithms we have designed rely solely on the interpretation of the daily published performances numbers of the Unit Trusts and OEICs that are based in the U.K. and are invested in the World`s Stock markets. The algorithms put these funds into the relevant I.M.A sectors and then put these sectors and funds into their order of performance. Best first and worst last and rigidly based on the numbers. Instinct and the subconscious having been relegated to the same level as slugs and black pudding. In other words, they are to be avoided at all cost.
We are followers of the principles of the late Nineteenth Century investor Jesse Livermore. One of his basic rules was that “One should not make any investment decisions which were based on your thoughts and intuition until the Markets first confirmed these beliefs.” Upon reflection I wonder whether F.E.I. contradicts this rule or does it add to its relevance. Maybe the rule just controls the timing of the investment but not entirely the direction. There can be little argument that rigorous factual analysis must come first when making your decision as it is not possible to optimise the result without using reasoning, deliberation and planning. But when there is a choice to be made then that is the time that we fall back upon our six-sense and our emotions which have been developed from our learning and a lifetime of experience.
Our subconscious mind allows us to instinctively identify ideas and decide whether they are good or bad. We all must have experienced those nights when the mind runs riot with ideas and you appear to be able to strategise, argue and see more clearly than when fully awake. How often next morning do we wish we could remember the details of these eureka moments? Therefore this would seem to indicate that our subconscious mind is quite capable of reasoning and making optimal choices. Perhaps as investors we should endeavour to train ourselves to combine the deliberate numerical approach with that which is informal and intuitive. Such an approach might increase our flexibility when making decisions. It might afford us the chance to better negotiate the world of the unknowns. We might then give more credibility to our gut instincts.
As I write there are many examples where this approach might be of use in preparing ourselves for significant market changes yet to be revealed in the numbers.
The Eastern Ukraine conflict combined with the sanctions now imposed upon Russia.
The Western Democracies reluctance to tackle and resolve their debt ridden finances.
China and Japan edging ever closer to conflict over the disputed ownership of a few small islands in the South China Sea.
Turmoil throughout the Middle East as Islamic pressure groups fight for control of these countries.
If we are to debate these questions constructively our conclusions must involve the integration of both the known facts and also our instinctive and emotional thinking. This must surely enhance our wisdom and the choices that we might anticipate having to make in the future. We then stand a better chance of being prepared for the inevitable future stock market movements whilst we wait for the numbers to reveal the timing.