It was just reported that in April consumer spending surged – up 1% – the highest jump in 6 years. Highlights include a 2.3% uptick in durable goods – like cars, and a 1.4% uptick in nondurable goods – items like clothing.
Consumer spending is an important economic figure – as it accounts for 70% of our economic activity.
The Commerce Department data showed that wages and salary were up 0.5% and overall income up 0.4%. That’s encouraging.
This is an important psychological win for investors.
But when we look at ourselves – a nation of insatiable consumers – we need to understand what is the driving force behind what we purchase and what we leave on the shelf because we cannot afford the luxury.
What prompts a person to buy something?
Is it want? Is it need?
I think it’s a little of both. But more importantly… it’s emotion.
People don’t buy things because of the flavor, color, style or texture. They buy things according to how it makes them feel. Money might be a little tight but you really want that new pair of golf clubs or you just got a promotion – what better time to buy a car.
We do this to make ourselves feel better about well… ourselves.
I know most all my purchases are made on emotion. It’s very rare to find somebody that doesn’t buy things based on emotion. They’re out there, but for the most part, every choice we make is based on emotion…
Except when it comes to stocks.
Benjamin Graham, famous British born American economist and investor once said, “Individuals who cannot master their emotions are ill-suited to profit from the investment process.”
Don’t get me wrong, there are some people who buy stocks based on emotions, but these are the people who are willing to take a loss for a product or company they believe in.
A real shark doesn’t care about how owning a piece of a company makes them feel, they only care about one thing…
Profits.
When there’s blood on the streets – as the saying goes.
Most investors fall under this category. They care very little for what the company does, their corporate structure, or their global environmental impact – sharks only care if a company will make them money.
Now, making money is an emotional motivator as well. More money means you can buy more of the things you like. Money means power. Power to do what you want – buy want you want – when you want it.
But the stocks that are bought and sold on a daily basis? I’d say about 90% of them have zero basis in the realm of emotional purchases. They’re bought and sold because they either made money or they didn’t – plain and simple.
Whether that money’s made over the short term or the long run… It comes down to dollars and cents. And to investors, if it doesn’t make dollars, it doesn’t make sense.
Stocks may be the purest purchase you make…
There’s no hidden purpose. They’re bought because of their ability to add zeros to your bank account. Easy, peasy, lemon squeezy…
I like simple things…
So it makes sense as to why I was attracted to this line of work. I don’t have to worry about convincing somebody emotionally why they should or should not buy a stock. I simply present the facts as to why I believe a stock will make money or why it won’t.
It’s hard to argue with facts, with numbers. It’s black and white. Or I should say, black and red.
It’s important to judge a stock based on its fundamental and technical indicators. Stay away from the herd mentality.
Like the legend himself, Warren Buffett once said, “We simply attempt to be fearful when others are greedy and greedy only when others are fearful.”
That my friends is emotional investing. Letting your emotions and those of others cloud your judgement.
Take a look at your portfolio…
See if you can weed any emotional purchases out of the bunch. Track their performance. Have you held on to them even though they’ve made little to no money? Or worse, lost money?
If they have…
It may be a good idea to get rid of them – even if you really love their product or service. Keep only the stocks that have the chance to make you money – flush the refuse – make your stock buying decisions with your head and not your heart.
Regards,
Ethan Warrick
Editor
Wealth Authority
