The Psychology of Money - An Investment Manager\'s Guide to Beating the Market

[S]ome days I’ll keep trying to buy the market. I’ll be trading in

and out from the long side. In other words, I keep looking to buy

the market on a break or retracement. All of a sudden, I’ll get a

feeling and I’ll say to myself, this market feels heavy. That’s ex-

actly what I’ll say, it feels heavy; meaning it doesn’t feel right. I

think it’s going up. But if I rely on my intuition, my intuition tells

me it feels heavy... it’s more than just a feeling, it’s vital infor-

mation. If my head says buy and I keep trying to buy and it isn’t

working, and all of a sudden my stomach tells me it feels heavy,

I will rely on my intuition. I’m going with my stomach! Most

times I won’t be able to even verbalize it. It just happens auto-

matically. Experience has taught me to trust it (Koppel, The

Intuitive Trader).

Some professional investors might react to this line of reason-

ing with, “Yes, but long-term investing is different from trading,

therefore we shouldn’t take our cues from them.” My response to

this comment would be that true long-term investors—the Warren

Buffetts of the world—are rare these days. Portfolio managers watch

their screens all day long and are ready to trade on any significant

news. In this sense, they are like traders who must react in the

moment to whatever stimulus is presented. In fact, portfolio man-

agers who operate this way—trading positions on news announce-

ments—should pay particular attention to the techniques of trad-

ers, as they are playing on the same field. Intuition would be an

important ally for them.

But what about true long-term investors? Is intuition really

useful to them? Again, I would argue that it is. The main difference

between trading and investing is the time frame. The key to success

is still the decision-making ability. The master investors discussed

in this book all demonstrate the successful interplay between logic

and intuition. Soros, with his penchant for reversing huge posi-

tions on a moment’s notice, clearly relies heavily on his intuition.

But even Buffett—the exemplary long-term investor (“My preferred

investment horizon is forever”)—uses intuition in his investing. He

is well known for doing major business transactions only with

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