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Kass: Emotion Begets More Volatility

Fifth, consider professional money management (based on hard-hitting analysis and a flexible investment strategy) rather than "doing your own thing." Or at least consider a portion of your stock portfolio to be placed in professional hands, in the hands of an organization that understands your risk profile, investment objectives and has a well-defined investment process.

Sixth, if you are trading for yourself, consider a more opportunistic trading approach with your investment portfolio. As I have recently written, let the market's gyrations work in your favor -- at least until the volatility and emotion dies down.

Seventh, invest/trade with your head, not over it.

"I can't sleep" answered the nervous one.

"Why not?" asked the friend.

"I am carrying so much cotton that I can't sleep thinking about. It is wearing me out. What can I do?"

"Sell down to the sleeping point," answered the friend.

-- Edwin Lefevre, Reminiscences of a Stock Market Operator

Always maintain position size that you are comfortable with and sell down to your "sleeping point." Given the rising volatility over the past two years, keep average positions small, trade for singles, invest for doubles, and err on the side of conservatism.

Eighth, during these periods of stress, take some time off and compile an investment library and begin to read books written by investors and traders who have succeeded on the playing field and have walked the walk as opposed to those in the press box or in academia who simply talk the talk. What follows is a list of investment books I have previously recommended on Real Money Pro. You will likely learn more practical investment strategies and risk-control techniques from these investment wizards than spending a year in a Wharton classroom (and you will save $65,000 in tuition and board!).

  • Howard Marks' The Most Important Thing
  • Jim Cramer's Getting Back to Even, Stay Mad for Life: Get Rich, Stay Rich (Make Your Kids Even Richer), Mad Money: Watch TV, Get Rich, Real Money: Sane Investing in an Insane World, Confessions of a Street Addict, You Got Screwed! Why Wall Street Tanked and How You Can Prosper
  • Barry Ritholtz's Bailout Nation
  • Michael Lewis's The Big Short
  • Doyle Brunson's, Super System
  • Andrew Ross Sorkin's Too Big To Fail
  • Richard Bernstein's Navigate the Noise
  • Michael Lewitt's The Death of Capital
  • Gregory Zukerman's The Greatest Trade Ever
  • Charles Mackay's Extraordinary Popular Delusions and the Madness of Crowds
  • Edwin Lefevre's Reminiscences of a Stock Operator
  • Jeff Matthews' Pilgrimage to Omaha
  • Jeff Hirsch's Super Boom
  • Walt Deemer's Deemer on Technical Analysis (2012)
  • Jack Schwager's Market Wizards (all versions)
  • Adam Smith's The Money Game
  • George Soros's The Alchemy of Finance
  • Leon Levy's The Mind of Wall Street
  • Martin Shubik's The Uses and Methods of Gaming
  • Graham and Dodd's Security Analysis
  • Charles Raw's Do You Sincerely Want to Be Rich?
  • James Grant's Minding Mr. Market
  • Hewitt Heiserman Jr.'s It's Earnings That Count
  • Martin Mayer's The Fed
  • James Altucher's Trade Like a Hedge Fund
  • Marty Schwartz's Pit Bull
  • Robert Shiller's Irrational Exuberance

This column originally appeared on Real Money Pro at 8:31 a.m. EST on Nov. 4.
At the time of publication, Kass and/or his funds had no positions in any stocks mentioned, although holdings can change at any time.

Doug Kass is the president of Seabreeze Partners Management Inc. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.

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