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Investment & Finance

How to Avoid Emotional Investing

By
Jessica Cutter
Updated
December 4, 2023
5 minute read
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One of the greatest influences on investors across the board is their emotions. Despite experience and knowledge, no investor can control his/her cognitive and emotional reactions 24/7. The array of information pounding at the mind causes mistakes that disrupt a portfolio. Whether fear, greed, enthusiasm or a fuse of all three, investment errors happen when emotions play a role. But with alphaAI, investors can avoid that human error with technology that provides risk-adjusted returns and comparable buy-and-hold strategies based on data, not emotion. 

Common Emotional Investing Instigators

The road investors travel is filled with influential factors regardless of a bull or bear market. In a bull market, one might be too excited about potential gains and miss out on the opportunity to sell. In a bear market, one may panic and pull all their money out of the market immediately.

These emotions are triggered by a variety of factors, with a few listed below;

  • News and Media
  • Market Sentiment 
  • Global Events
  • Market Volatility
  • Herd Mentality 

Other people's actions are one of the largest influences in investing, not data or cultivated formulas, but human behavior. The factors around the world and close to home can put an investor off from smarter choices, leading to that instinctual reaction taking over. A gut feeling is usually right, right? But not if the gut feeling is based on everyone else's perception. 

The Results of Emotional Investing 

The result of emotional investing isn’t always negative, but it isn’t optimistic either. Although investors jump into profitable trends or back out at appropriate times, fear of failure hinders potential gains and worsens losses. 

When the United States entered a bull market in 2023, investors were slow to capitalize on the developments in the market and missed opportunities for investments. The market sentiment from the pandemic dragged into 2023, social and political factors intensified, and global events cultivated anxiety. All of these factors instigated fear. The fear of investors results in emotional investing, not investing based on the data. With alphaAI, a tech and ML (machine learning) approach can avoid those emotional investment decisions. 

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How alphaAI Eliminates Emotional Investing 

The point of alphaAI isn’t to eliminate the control of investors, but rather, to enhance the understanding of market movements through billions of data points to put portfolios in better positions. An investor cannot maintain the same strategy in a bear market in a bull market. On top of that, the emotional stress of going from one market to the other clouds decision-making and slows down adaptability. That is why alphaAI has incorporated four modes into every investment strategy. 

The AI technology evaluates the market conditions and will automatically adapt to those movements. 

The four modes include:

  • Surge Mode: When market conditions are ideal, your portfolio switches to Surge mode to capitalize on market upside.
  • Steady Mode: Under normal market conditions, your portfolio switches to Steady mode for balanced results.
  • Cautious Mode: When the markets are uncertain, your portfolio switches to Cautious mode to minimize losses.
  • Defense Mode: Under poor market conditions, your portfolio switches to Defense mode to focus on capital preservation.

The AI technology utilizes several decades of data spanning over 10,000 global stocks. It picks up on patterns, performs with predictive capabilities, and uses multiple models (a single model has over 10 billion data points) to make decisions. The different modes aren’t influenced by the latest news or events but by the trends that occur in data with immediate adaptability to avoid losses, get gains, and put your portfolio in the best position. 

Takeaways

Regardless of market conditions, an appropriate strategy will result in long-term benefits. Unfortunately, emotions often dictate investment decisions, so to counter that, alphaAI provides rationality and data-driven strategy to investors. The common pitfalls of emotional investing, triggered by factors like news, market sentiment, global events, volatility, and herd mentality, will be put to the side by leveraging technology and four modes to meet market needs. Automatically adapt to the market with alphaAI.

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