What is logical and what is emotional?
Being logical is liken to being rational. Logical people use facts to reason out life. They are known to be reasonable people who work in accordance to rules of logic. They are most likely good in analysis, computer coding and IT stuffs.
Being emotional on the other hand is liken to being irrational. Emotional people make decisions base on their feelings or gut feel. They are sometimes known as unreasonable people who does not work in accordance to logic.
The discussion on being logical or emotional
Over the Christmas holidays, me and my relatives were discussing on the difference of being logical or emotional. My uncles were saying that my cousin was too logical and he could not believe anything if there were no facts. He needs facts to believe that something is reasonable. One of my uncles then went on to comment that we can't be too logical when finding our life partner. Many of us will have a list of characteristics when looking for a partner of the opposite sex. However, sometimes it is quite impossible to find our "perfect" someone. If we're too logical and strictly follow a guideline, we may never find that someone. Sometimes, emotions are what brings two people together. My uncle went on to explain that it is the same with starting a business. A logical person will find that starting a business is too risky. All facts will point to the impossibility of starting a business. To a logical person, it is always too risky to start a business.
Now I'm not telling you that being logical is bad. It is only bad if you're overly logical. It is also bad if you're overly emotional. We don't want to be on the extremes of each side. The key is to find a balance between the both. In investing, we often hear that we can't be too emotional. Being too emotional will result in us making all the wrong investment decisions. On the other hand, we can't be too logical also. Every investor will know that we cannot know whether a stock is at its bottom or at its peak. When a stock goes up, it can go higher and when a stock goes down, it can go even lower. If you're too logical and try to predict the perfect entry point, then you will never find one at all. It's the same as finding a perfect partner which is virtually none existence.
Always be prepared that nothing is perfect
Therefore, to be a successful investor, one needs to know that there are no perfect entry points. We need to acknowledge this imperfection and work around it. When you buy a stock, be prepared for prices to go down so you can buy more. This means you should put aside extra capital at every instance. This is liken to an opportunity fund where you deploy in when the market declines. This imperfection may exist throughout your investing journey no matter how much experience you have. You need to prepare yourself for it. It's the same in your marriage or relationships. You know your partner is imperfect and you acknowledge that. You work around it by knowing the imperfection and prepare for it. How you prepare for it is up to individuals. However, relationships are more complicated. Sometimes you just have to accept the imperfections and live through it.
In investing, we do our part by researching on the company, analysing its financial statements, calculating its intrinsic value and determine the fair value to enter. As long as the company's fundamentals remain strong, an investor continues buying at or below the fair value. In the long term, gains are realised in the form of dividends and capital appreciation.
When you first started investing, it is liken to starting a business. An overly logical person will find investing too risky and never get in while an overly emotional person will jump into the market ignoring risk and get themselves burnt. If you manage to find the balance between the both, you will be on your way to being a successful investor.
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