No Wonder You're Losing to the Market

Good news for the anger-management crowd. According to a new study, you're a superior investor.

Well, sort of. Myeong-Gu Seo of the University of Maryland and Lisa Feldman Barrett of Boston College studied 101 stock investors and their trades over a four-week period. They found that those who embraced their emotions were more efficient with their decisions, more creative in their trading, and more engaged.

Hulk smash the market?
Naturally, the study's authors say their findings flout conventional wisdom: "Contrary to the popular belief that the cooler head prevails, people with hot heads -- those who experienced their feelings with greater intensity during decision-making -- achieved higher decision-making performance."

Shocking.

Dare to be similar
I don't mean to poke fun. Well, OK, yes I do.

How exactly is this news? Can't we assume that traders who make their investing decisions based on emotion act quickly and decisively? And haven't we known for years that day traders must be fast on the draw in order to rank among the select few who earn profits in this game of stock-market chicken? I'd be more surprised if the ice-veined turtle traders were outpacing their fair-hared peers over four freaking weeks.

Think about it. The cool-it crowd is always more likely to buy stocks that are experiencing temporary price weakness. They're the bargain shoppers. They know that when stocks go on sale, they can stay on sale for months at a time.

And let's be honest: Anyone can get lucky. Getting lucky over a four-week period doesn't make you a good investor. That's why you'll rarely find real stock pickers buying momentum stocks like these:

Why play Wall Street's game?
Most new investors are tempted to trade rapidly. They're enticed by the counsel of Investor's Business Daily founder William O'Neil, who says you should never suffer more than an 8% loss in any stock. They're entranced by Jim Cramer's frothy -- but sometimes costly -- trading advice. And they're ensnared by academic studies that say they can feel their way to riches a la Suze Orman.

What they don't realize is that stopping short with excellent stocks, just as Mr. Market is suffering temporary insanity, will often destroy their long-term returns. Indeed, some of the best stocks ever have suffered greater-than-50% drops during huge runs, including five-bagger Amgen (NASDAQ:AMGN).

So go ahead. Find your inner trader. Get angry at the market. Get passionate about your stocks. Buy and sell till your fingers ache. But please -- please -- make sure you do it all in the confines of a fake-money watch list, OK? Your portfolio deserves at least that much.

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Fool contributor Tim Beyers is searching for momentum in his effort to get off the couch. Tim didn't own shares in any of the companies mentioned in this article at the time of publication. Find Tim's portfolio here and his latest blog commentary here. The Motley Fool's disclosure policy just broke through resistance and is obviously heading higher.