There is a passage in Steven Pinker’s book The Better Angels of Our Nature: Why Violence Has Declined that focuses on self-control which caught my eye:
Researchers Baumeister and his collaborators measured self-control by asking university students to divulge their own powers of self-control by rating sentences such as these:
I am good at resisting temptation.
I blurt out whatever is on my mind.
I never allow myself to lose control.
I get carried away by my feelings.
I lose my temper too easily.
I don’t keep secrets very well.
I’d be better off if I stopped to think before acting.
Pleasure and fun sometimes keep me from getting work done.
I am always on time.
After adjusting for any tendency just to tick off socially desirable traits, the researchers combined the responses into a single measure of habitual self-control. They found that the students with higher scores got better grades, had fewer eating disorders, drank less, had fewer psychosomatic aches and pains, were less depressed, anxious, phobic, and paranoid, had higher self-esteem, were more conscientious, had better relationships with their families, had more stable friendships, were less likely to have sex they regretted, were less likely to imagine themselves cheating in a monogamous relationship, felt less of a need to “vent” or “let off steam,” and felt more guilt but less shame. Self-controllers are better at perspective-taking and are less distressed when responding to others’ troubles, though they are neither more nor less sympathetic in their concern for them. And contrary to the conventional wisdom that says that people with too much self-control are uptight, repressed, neurotic, bottled up, wound up, obsessive-compulsive, or fixated at the anal stage of psychosexual development, the team found that the more self-control people have, the better their lives are. The people at the top of the scale were the mentally healthiest. (my emphasis added)
Could it also be those with the highest self-control are also better investors? I suspect the answer is clearly yes. One can probably easily guess how we feel about the topic of self-control given that the name of this blog is Systematic Relative Strength. The ups and downs of the financial markets are extremely effective at tempting investors to respond to their emotions and to forget about self-control. The natural consequence being the tendency to buy when an investor feels good and to sell when an investor feels scared (a recipe for poor investment results).
While there are countless investment and self-help books that claim to be able to train people to develop greater self-control, I think that an even more effective way for investors to reap the rewards that accrue to the self-disciplined in the financial markets is simply to employ systematic investment models. Our preference at Dorsey Wright is to execute relative strength-driven models, but there are surely also other investment models that can be applied systematically. My experience in talking to numerous financial advisors on a regular basis is that those advisors who employ rules-based models tend to be more confident in their ability to provide value for their clients, tend to be more relaxed, and tend to be bigger producers than those without such an approach.
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