Tip 2: Don’t Use Your Intuition

When we have to make a decision, we often resort to our intuition–that gut feeling. And, in many cases, it’s a good idea to listen to that feeling, especially if we are already familiar with the situation or if we already know what makes us comfortable and happy. For instance, in his book Blink, Malcolm Gladwell discusses how people who make snap judgments about a doctor, whether the relationship will be productive or not, are often correct. People tend to know what they like or don’t like in relationships from years of interacting with others and so they intuitively know quite quickly if they will get along with a new doctor or not, even if they can’t articulate the reasons.

Employers often use their intuition when interviewing prospective employees, calling it their gut feeling about the person, and more often than not they are correct when it comes to a potential employee who is likely to make a good fit in terms of relationships. Yet, research finds that intuition is not a good decision-making tool for employers in terms of finding the employee who will do the best job. That quality is better achieved with objective measures. The reason is because our internalized and emotional biases our excluded from the decision-making process with objective measures–some pre-arranged set of criteria that reflects an ideal employee, for example.

When trading and investing in the stock market, it is tempting to use our intuition to decide to buy or sell a stock. We may feel like we intuitively know if the stock will go up or down–it’s that gut feeling we get. On occasion, we may even hear of some stock guru who uses their intuition to make very profitable trades or investments. Or, we may visit a community site of traders or investors and it looks like some of the best ones are using their gut feelings to make decisions. Perhaps, there are some people who are so familiar with the workings of the stock market that they can do that successfully.

But, the odds are that we are not those rarefied, few people.

If we want to consistently make money in the stock market, we need objective measures that tell us when to buy and sell. In this way, our emotions will be excluded from the decision-making process. Our criteria–if already tested for success–will not win every time, but they will make us money in the long. And, in the end, that’s the goal–to make money, not to have an emotional roller coaster of a ride, as fun as that might be.

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