Gaddafi has apparently been dragged from a drainpipe and killed – presumably by a mob.

From what we have been told he was a dangerous and violent dictator who had no human decency and a total self-interest.

From what I have seen in the news media this morning, the west is gleefully welcoming not only the fact that he his no longer a danger but also the way in which he was killed. “He was dragged from a drainpipe, killed and then his body paraded through the streets” is the sort of comment widely used on television channels this morning.

I understand how the locals in Libya would be swept up in the hatred for him especially if they had had personal experiences, but we in the west have had no such experiences and should be in a better position to be objective and apply (or at least comment on) the rule of law. I have not heard one person say “he should have been captured and put on trial to face his crimes and spend the rest of his life contemplating the errors of his ways”.

We all accept the need for discipline and structure, but when emotions are running high it’s usually the first casualty.

There are at least three lessons for investors from the overnight events:

1. The need for a rule book – there is a mountain of evidence documenting “the madness of crowds” and in hindsight, the costs are always the result of non-compliance with established structures. Get yourself an investment policy or investment rule book – it will at least give you an objective set of principles and rules to apply when the emotions start running hot.
2. When groups of human beings are emotionally charged (otherwise known as mobs), it never ends well for anyone. “Herd mentality” is common amongst investors. Have a look at the capital flows in and out of the markets and you will see that the “mobs” always do the wrong thing. When the “mob” is excited and positively charged (i.e. the market has done well), they flood it with cash. When the “mob” is negative, they run for cover. Exactly the opposite of what sensible investors do.
3. The need for an independent sounding board – being caught up in the emotion is being human. It’s unavoidable. Making mistakes during a time of high emotions is avoidable and having someone who is free of any conflict or interest to act as a sounding board will usually help to not only stick to the rulebook, but also avoid unnecessary mistakes.

To get an article on how to set your own investment ‘rule’ book, contact Melissa on (02) 8908 5300 or email her at info@sentinelwealth.com.au.

Justin Hooper
Managing Director & Financial Strategist
SentinelWealth