MW How golfing - and putting in particular - can be applied to investing, according to one strategist
By Jamie Chisholm
Critical information for the U.S. trading day
It's the last trading day of a turbulent August. Yet the stock market sits near record highs having overcome a savage early-month sell-off and apparent disappointment that Nvidia could not quite match very lofty expectations.
Frazzled investors can look forward to a long Labor Day weekend. Perhaps they should hit the golf course. Not just for the relaxation, but because lessons learned on the putting green may help with their trading.
So says Jessica Rabe, co-founder of DataTrek Research, who has analyzed research on the brain activity of golfers and shows how that relates to investing.
First, here's a brief summary of the research from the Journal of Frontiers in Psychology, where the brain activity of 28 golfers during 140 putts from eight feet and five different positions was collected via electroencephalogram systems.
To simplify the science, they found that brain activity associated with better preparation made successful putts more likely. Successful putts also tended to show lower activity "associated with concentration and error detection in motor tasks -- especially right before the putter connects with the ball," says the research.
Higher brain activity associated with concentration and error matched unsuccessful putts and may indicate hesitation or a need to adjust just before executing. In other words it's better to commit to the putting stroke.
Finally, "successful putts were associated with more efficient processing and less energy expenditure, compared with unsuccessful ones," say the researchers. In other words, successful putts "cost the players less brainpower..
Rabe reckons these findings relate to investing in three ways.
First, emotional overthinking hurts performance. For example a major pitfall for investors is loss aversion. Just as a golfer may hesitate and execute a weak putt because they fear the prospect of missing and leaving themselves with a difficult next shot, so investors "overweight potential losses relative to similar sized gains rather than consider potential payoffs in a linear fashion," says Rabe.
Investors are hard wired to fall prey to suboptimal decisions, according to Rabe. Avoiding such emotional pitfalls helps mental stamina, a key attribute of successful athletes and investors.
"Elevated volatility earlier this month showed how the prospect of losses can outweigh the chance of future gains given that money flows into U.S. stock mutual funds and ETFs turned negative," says Rabe. Since then, as we have noted, the S&P 500 SPX is almost back to its record high.
Next, develop a clear plan, rooted in skill, before acting. The researchers found that golfers putted well when they practice to the point that they dependably perform the action and handle the pressure of competition,
"Success in golf and investing or trading comes down to repeating a process with a track record of success. That builds confidence because it gives peace of mind that your method worked reliably in the past," says Rabe.
Lastly, avoid wavering from your plan. The research showed that committing to a stroke made for better putting. "Positive outcomes in both golf and investing require optimizing every swing or investment decision. That means committing to a shot, investment or trade," says Rabe.
For example, many traders may behave irrationally during periods of extreme market volatility, panicking out of positions despite an otherwise sound strategy. Instead, a golf player or investor should step a way from a putt or possible trade until they have a clearer plan. Waiting, doing nothing, can be better than rushing in.
Markets
U.S. stock-index futures (ES00) (YM00) (NQ00) are higher as benchmark Treasury yields BX:TMUBMUSD10Y are little changed on the day. The dollar index DXY is steady, while oil prices (CL.1) dip and gold (GC00) is trading around $2,534 an ounce.
Key asset performance Last 5d 1m YTD 1y S&P 500 5591.96 0.38% 2.67% 17.24% 24.05% Nasdaq Composite 17,516.43 -0.58% 1.87% 16.69% 24.81% 10-year Treasury 3.857 5.30 6.40 -2.39 -32.87 Gold 2558.3 1.50% 2.71% 23.48% 30.09% Oil 75.99 1.37% 2.50% 6.53% -11.69% Data: MarketWatch. Treasury yields change expressed in basis points
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The buzz
The Fed's preferred inflation gauge, the personal consumption expenditure price index, will be published at 8:30 a.m. Eastern. Follow MarketWatch's live coverage.
The final reading of consumer sentiment for August will be published at 10:00 a.m.
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"Today, as the Fed is attempting to soft land the economy and China continues to struggle to prop-up its ailing economy, it takes more barrels of crude oil to purchase a single ounce of gold bullion - a clear warning signal for risk assets," he says.
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-Jamie Chisholm
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August 30, 2024 06:32 ET (10:32 GMT)
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