I guess it’s not surprising that renting his house to college kids made him a little paranoid. He often showed up at random times to make sure there was no revelry taking place. Once, he chased away some of my buddies as we were watching “Monday Night Football” (I guess the keg in the corner didn’t help our argument).

This no-nonsense, unattached attitude is the perfect way to approach the stock market and your investments. After all, most investors have had stocks that we thought were our friends, but that ultimately turned on us and caused pain.

The trick is to not become emotionally attached to them.

This is easier said than done, so if you find yourself hanging onto stocks for too long, or investing more with hope and emotion than sound reasoning, allow me to give you some tips…

When it Comes to Emotions, Adopt DeNiro’s “Heat Mentality”

I was fortunate that my stock market education started at a trading desk, where we executed trades according to how the market and stocks were performing. Period. Nobody cared if the stock had a low P/E ratio… whether the company had the next great biotech drug… or was run by a terrific management team.

To us, stocks merely represented three or four letter symbols. That’s it. In some cases, I didn’t even know the names of the companies and couldn’t have told you much about their businesses.

Sounds a bit clinical, doesn’t it?

It was. And it served me well. I learned that you shouldn’t get emotional about stocks. They’re simply investment vehicles in which to park your money. Granted, you can be in a stock for five minutes or 20 years, but you should never form a relationship with them.

As Robert De Niro’s character said in the movie, “Heat”: “Don’t allow yourself to get attached to anything you cannot walk away from in 30 seconds flat if you feel the heat around the corner.”

Think about it. Many of us have owned a favorite stock – perhaps for years. Oftentimes, the longer you hold it, the more difficult it can become to sell it – even when you know you should.

We form an emotional attachment to the business that often has nothing to do with how the stock is performing – or how much money we’re losing from it.

This can be an issue, particularly in the biotech and health care spaces …

It’s Easy to Form Emotional Attachments to Early-Stage Companies

One of the key price catalysts for a biotech or health care company is when a medical advancement is made. For example, a new cancer drug is approved, a company sees strong clinical trial results, etc.

Not only are we happy that our investment is worth more, but we also feel good about being involved with a company that saves lives or alleviates suffering.

For that reason, some investors form particularly emotional relationships with early-stage companies that show great promise.

In The Xcelerated Profits Report, I recommended Medivation (Nasdaq: MDVN). The company is currently developing one of the most promising drugs to combat Alzheimer’s Disease – Dimebon.

When I made the recommendation in August 2007, I believed Dimebon would work and that the potential reward was worth the risk. Aside from the human issues surrounding Alzheimer’s, it was strictly a financial decision. And if the drug is successful or not, the decision to recommend selling the shares will be made for financial decisions only.

You Must Separate Emotion From Reality

That said, I’ll be terribly disappointed if the drug is a dud. Not only for my subscribers, but also for millions of Alzheimer’s patients and their families. The disease runs in my family, so it’s especially personal.

However, I won’t let those emotions get in the way of taking a profit or cutting a loss. If it doesn’t work I’m not going to hang on to hope, looking for some morsel of data that justifies holding onto the stock. The bottom line is that if the drug isn’t proven to be safe and effective, I don’t want to own the stock anymore.

Biotech investors often tell me that they can’t/won’t sell a stock because they’ve become emotionally invested, as well as financially. This isn’t surprising -dreams of riches and a better world are wrapped up in these tiny companies.

But you simply cannot allow that to happen, otherwise you risk taking a double hit if things don’t pan out in your favor.

So how can you remove emotion from the equation if you’re not using a stop? Fight emotion with emotion.

Three Ways to Take the Emotions Out of Your Investment Decisions

#1: Write Down Your Reasons:

When you buy a stock, write down the reasons why you’d sell and post it somewhere near your computer. Perhaps it’s when the stock hits a certain price, or when news on a particular drug comes out.

Whatever the reason is, write it down on paper and stick it in a visible place. That way, when your catalyst hits, it will be tougher for you to justify to yourself why you’re going against your original idea.

#2: Phone a Friend:

This doesn’t just work for “Who Wants to Be a Millionaire.” Telling a friend or family member your reasons for selling a stock is even better than writing the reasons down for yourself.

After all, you’ll face some serious peer pressure if you suddenly change your mind and refuse to take profits or cut a loss. Outsiders aren’t as emotionally involved as you because it’s not their money on the line, so they should be able to make you see that your original reasons are still right.

#3: Conduct an Annual Portfolio Review:

Review your portfolio at least once a year. Take a look at every stock and ask yourself why you’re still holding it. If your answer sounds more like a justification than a legitimate reason, dump it.

Any time there is money involved, emotions run high. Of course, it’s easier to get less attached to stocks in other sectors. For example, many investors have no problem letting industrial stocks go when their trailing stops are triggered.

But it’s your job to remove as much of it as you can and focus on decisions that will benefit your portfolio.

Marc Lichtenfeld

Source: Three Ways to Stop Making Emotional Investment Decisions

Actually, it’s not fear. It’s pure irrationality, as top-quality stocks have been spanked down to bargain-basement levels, despite no discernable change in their businesses.

But business is still booming in the biotech sector…

Over that time, we’ve seen three huge buyouts occur in the Big Pharma/biotech area…

It started in January, with the news that Pfizer (NYSE: PFE) would shell out $68 billion to buy Wyeth (NYSE: WYE).

And things really got rolling this week, with the news that Merck (NYSE: MRK) will acquire Schering-Plough (NYSE: SGP) for $48 billion and that Roche and Genentech (NYSE: DNA) have finally concluded protracted negotiations that will see Roche buy the biotech superpower for $47 billion.

Total value of done deals: $163 billion. And in a market where access to capital has supposedly dried up.

The question is: Could these Big Pharma mergers signal a shift in sentiment and a bottom for the broader stock market?

If you’re looking for a simple, one-word answer… no.

But if you don’t take your investment advice from such in-depth, hard-hitting features as the “Lightning Round,” I invite you to keep reading…

The Credit Is There… But Only For The Right Deal

There’s no doubt that it’s tough to get credit these days. But as the merger deals above show, capital is clearly available for the right deals.

For example, in order to finance its deal with Genentech, Roche issued nearly $33 billion in notes. In addition, Pfizer received over $22 billion in loan commitments from various banks to complete its transaction. And similarly, J.P. Morgan (NYSE: JPM) slapped down $8.5 billion so Merck could fund its deal with Schering-Plough.

Again, this has occurred during one of the most fear and panic-ridden periods in stock market history. And it’s come despite frequent comparisons of the Depression Era. Listen to the media too much and you’d expect to see the world in a grainy, brown hue every time you look out the window.

Don’t get me wrong here: I’m keenly aware that the economy is in bad shape. No one has ever accused me of being a Polyanna. But my point is that it’s not necessarily all doom-and-gloom (as some would like you to believe).

These healthcare/biotech mergers indicate the beginning of a thaw in credit markets and hopefully the start of a healing process for the markets. Notice that I’m not calling it a “bottoming process” because as I said last week, I do believe we’ll see new stock market lows.

But as more deals get done, investor and lender confidence will slowly return to the market. And I do think more acquisitions are imminent – particularly within the biotech sector…

The Biotech Sector – A Wave of Consolidation

The biotech sector is likely in store for a wave of consolidation. While the above-mentioned Big Pharma companies have boosted their pipelines and created massive biopharma companies with their acquisitions, there are still many pharmaceutical companies that desperately need to fill their pipelines.

And that bodes well for biotech – particularly when you consider that the largest biotech company after Genentech is Amgen (Nasdaq: AMGN), which boasts a market cap of $48 billion.

After that, Gilead Sciences (Nasdaq: GILD), which just announced a $1.4 billion takeover of CV Therapeutics (Nasdaq: CVTX), is next at $40 billion. Then the market thins considerably, with only three companies that have market caps over $10 billion and 11 companies with market caps of $1 billion or more.

For example, Merck could buy Biogen (Nasdaq: BIIB) and Genzyme (Nasdaq: GENZ) for less than it cost the firm to buy Schering-Plough.

The point is: Even though the biotech sector has outperformed the S&P 500 during the bear market, many biotech stocks have become cheap.

In fact, pharmaceutical companies wouldn’t even need to raise capital to buy a BioMarin (Nasdaq: BMRN), or Xcelerated Profits Report portfolio member Medivation (Nasdaq: MDVN) and many others like them.

Our 2 Favorite Emotional Friends: Fear And Greed

When managements are scared they hunker down and hang on to capital. But when opportunistic executives add to their businesses – even during downturns – that kind of optimism and activity is healthy. They’re essentially expressing their confidence that conditions will improve.

Remember… emotions control the stock market as much as fundamentals. And as we’ve mentioned in previous columns, fear and greed are the two main players. So when investors see this kind of activity, they start to think about their own opportunities, rather than cowering in the corner in the fetal position like so many have for the past few months.

Big Pharma Falls For Attractive Biotech

As we’ve seen recently, Big Pharma has already fallen for some of the most attractive biotech names. And as some more choice companies begin to get snapped up, you might see a rush into the sector by other Big Pharma firms to grab the existing quality companies before someone else does.

Mix in this momentum with some speculation and that could kick prices higher, causing Big Pharma executives to pull the trigger before valuations get too expensive.

The economy is still bleeding, but these recent acquisitions indicate that the patient is no longer spurting blood all over the emergency room floor. Eventually, it will stabilize and walk on its own again.

When it does, the strongest drug companies will be the ones that took advantage of this unique opportunity to fill their pipelines with products from inexpensive biotech companies.

Source: The Biotech Sector: Big Mergers Could Mean Big Gains For Biotechnology

Stuffed with $275 billion worth of tax cuts for both businesses and consumers, this new proposal also has $550 billion earmarked for spending on healthcare, infrastructure, and education.

But it wouldn’t be Congress without some hearty waffling. And while Democratic leaders unveiled the bill today, expect those numbers to fluctuate as the plan works its way through the Capitol. The goal is to get an agreement in place for Obama to sign by mid February.

And speaking multi-billion dollar aid packages…

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Please, Sir… Can We Have Some More?

It looks like lawmakers are going to have to set aside a few more pennies for Bank of America (NYSE: BAC).

Having already received $25 billion from the Treasury’s Troubled Asset Relief Program (TARP), BAC shares got crushed today amid fresh concerns that losses at Merrill Lynch (which Bank of America bought out) will prove too much for the bank to handle by itself. Government officials are currently mulling over another financial aid package similar to the one it threw to Citigroup (NYSE: C) in November.

This could include a new cash injection from the Treasury’s $700 billion financial bailout package, or government guarantees against losses on bad loans, the earlier version of which was broken down buy our Guest Editor William Patalon III in Banks, Bailouts and Your Money. Both Obama and Federal Reserve chairman Ben Bernanke have made strong calls this week for the second $350 billion of the $700 billion total to be immediately made available.

According to the Wall Street Journal, the government and Bank of America were close to reaching an agreement on Wednesday evening. And while the bank has so far refused to comment on the story, it should make for an interesting fourth quarter and full-year earnings conference call next Tuesday.

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European Central Bank Swings Its Monetary Axe Again

Hot on the heels of the Federal Reserve, Bank of England, and other central banks, the European Central Bank (ECB), which controls monetary policy for the Eurozone nations, today chopped its own interest rate by a further 0.5%. The benchmark lending rate of 2% now equals the low from 2005.

The move comes after a shock 0.75% cut in December, as the Eurozone economy faces its first recession since the euro currency was adopted 10 years ago.

And Wednesday’s report that showed a 7.7% annualized slump in Eurozone industrial production in November seems to have sealed the deal for another cut. This despite ECB president Jean-Claude Trichet hinting recently that the bank may have left rates unchanged this month in order to first gauge the impact of the previous cut.

Barclays Capital says fourth quarter Eurozone industrial production is expected to contract by 3.6% – the worst performance since 1975 – with quarterly GDP growth shrinking by 1.5%.

Unlike some other central banks, though, the ECB’s staunch focus on controlling inflation has caused it to lag its counterparts in terms of monetary policy. This means it has more wiggle room available for further, meaningful rate cuts in the face of an expected deflationary period later this year. This strategy was used by India late last October when it cut its overnight lending rate from 9% to 8% to stave of a recession. To learn more, read India Wields Its Monetary Policy Axe…

We wrap up today with news just in from our healthcare expert Marc Lichtenfeld, who’s spent this week at the JP Morgan Healthcare Conference in San Francisco…

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Biotech Lovefest In San Francisco

The only way to describe the action around Genentech (NYSE: DNA) and Medivation (Nasdaq: MDVN) at this year’s conference is a veritable lovefest.

While neither company dished out any new information, they both simply reinforced why investors should be bullish. The crowd was absolutely buzzing after Medivation CEO David Hung spoke, with a throng of people following him down the hall like paparazzi trying to get near Angelina and Brad.

Shares took a hit today, but I wouldn’t be surprised to see increased institutional interest in the stock over the coming months.

Accuray (Nasdaq: ARAY) also gave a solid presentation, which described its business. When pressed for answers regarding whether the firm is seeing a downturn in capital spending by hospitals and cancer centers, the company said it would address that issue on its January 29 earnings call.

Source: Will Congress Say “Yes, We Can” To A New $825 Billion Stimulus Package?