“You can’t go by opinions or how you feel. You need to have and follow sound, proven rules.” – William J. O’Neil, MarketSmith Founder
One of the biggest challenges we face as humans, is to process information and data in a very objective fashion. While it might sound like an easy task, documented research has proven that the human mind tends to get trapped under various types of biases.
Biases are faulty and convenient shortcuts taken by one’s mind, due to cognitive errors, incorrect information processing, belief perseverance, or emotions. The stock market is an epitome mechanism, which captures the perception of millions of individuals in arriving at the price of a security. When such biases creep into investment decision-making, they tend to have unfavorable payoffs, which could pose a serious threat to one’s hard earned money.
A rules-based system like CAN SLIM, created by sound research, is a very useful technique to make gains in the stock market, without letting the outside biases and noise to hamper your decision making. How often do you confidently believe in a stock, only to see the market disagree with you, and continuously pound it lower and lower? How often have you watched a stock go flutter higher, only to sit on the sidelines, because somebody says its valuations are already rich? A rules-based system runs on facts and data, without emphasis on anyone’s opinion, which could be the source of various biases.