“Nobody was talking about these emotions and how they affect traders,” says Hendlin, who practices in California and writes a column called “Shrink Rap” for TheStreet. com. The traditional view of investment psychology was outer-directed, aimed at “psyching out” rival traders and getting a jump on the market. Hendlin’s inner quest led him to write The Disciplined Online Investor (McGraw-Hill) in 2000.
The day-trading boom has cooled off, but Hendlin says understanding your emotional tripwires, especially as they pertain to money, remains vital whether you’re a short-term trader or a long-term investor. “It’s not just knowing the fundamentals and the technicals of a stock,” says Hendlin. “The unconscious has a mind of its own. If you’re not aware of your own thoughts and feelings, you’ll tend to repeat the same errors with no awareness of where the problems are coming from.”
In his columns for TheStreet.com, Hendlin urges readers to find a trading style that harmonizes with their personality. The perfectionist, for example, falls prey to “paralysis through analysis,” endlessly searching for another report, another bit of information before buying or selling a stock. “They’ll watch it to death, and they don’t allow for normal mistakes that will be made because [the market] is not something we can control,” says Hendlin.
Hendlin says many investors can tolerate financial pain more than emotional pain — which explains why they hang on to a stock as it falls “to the depths of hell.” Bailing out on a stock, he says, may mean giving up our own sense of competence. “That’s a revolutionary idea for some stock traders,” says Hendlin. “They can’t believe they’d give up money to preserve some feeling about themselves.”