Welcome to Pendulum Capital Markets
What causes our emotions to swing from fear to greed is the same force that hurls an investment from undervalued to overvalued. It is people acting irrationally that create opportunities in the market. What allows an investor/trader to behave rationally is his ability to control his emotions. Most people are afraid of the unknown. What causes investors to panic is lack of planning. If you understand the risk in an investment you will never operate in a state of fear. As long as you quantify the risk you see and are willing to accept, you will not be afraid. The reason being is before you make an investment you have fully accepted the possibility of loss. The professional always thinks about the risk of a trade first, the amateur…the reward. A problem that most investors face is their advisors either downplay the downside of an investment or conveniently forget to mention the risk. As the arc of the pendulum swings from fear to greed another common mistake investors fall prey to is they become complacent and extrapolate the present into the future and downplay the risk of falling short of expectations or changing market conditions. Performance can create complacency and skew investors’ expectations. At Pendulum Capital Markets we help investors quantify the risk of their investments first to inoculate them from fear and then we help them weigh the potential reward while updating clients to changing market conditions so they can adjust their expectations. Keeping them balanced so they can make quality investment decisions.
1. Having or exercising the ability to reason.
2. Influenced by reasoning rather than by emotion.
3. Of sound mind; sane.
4. Based on scientific knowledge or theory rather than practical observation.
|Source: The American Heritage® Stedman's Medical Dictionary
Copyright © 2002, 2001, 1995 by Houghton Mifflin Company. Published by Houghton Mifflin Company.
What does it mean to be rational? In our opinion it represents an investor’s ability to reason. It represents a thought process that cultivates a critical thinker. A rational investor is INFLUENCED by reasoning rather than by emotion. This does not mean a rational investor is not emotional. A rational investor understands that his emotions play a part in his decision making process so he relies on an investment methodology to guide his decisions. A rational investor understands that his investment methodology will be wrong from time to time and he will make mistakes and take losses.
If being rational is based on your ABILITY to reason, are all rational investors created equal? An investor’s ability to reason is based upon his understanding of his investment methodology and ability to weigh the evidence. If you have an investment process that you BELIEVE is sound are you not acting rationally? Rational investors understand that being “rational” is a state of mind. Rational investors understand that investing or trading successfully requires skill. It is this skill that determines success in investing or trading. If you have ever read the book Market Wizards by Jack Schwager you will see that many investors and traders have produced incredible returns following different investment methodologies. Some are pure fundamentalists others are market technicians some do both. They have all acquired the skill to make money through their investment methodology. While we cannot guarantee you will be successful Pendulum Capital Markets can help investors weigh the evidence, give feedback on their line of reasoning and investment methodology. We choose to be a source of intelligence vs. a source of information.
Rationality is the engine that powers the world....