Investors need to be careful to keep emotion out of investing, says Criterion Investments.

Volatile equity markets, a weakening U.S. economy and the global credit crunch are rattling Canadian investors’ confidence, but according Criterion, emotion can be a bigger risk to their long-term plans.

Criterion points to Investment Funds Institute of Canada (IFIC) estimates that show fund sales for January 2008 could be as low as $28 million of net redemptions – well below the $4 billion in sales in January 2007.

“Compared to retail investors, institutional investors have often outperformed on a risk-adjusted basis because of their more disciplined valuations and investing strategies,” said Ian McPherson, president of Criterion Investments, during an advisor conference call today.

“A good example of that discipline is rules-based investing which eliminates emotional responses with a pure ‘by the numbers’ approach,” he added. “I’m talking about following a disciplined and repeatable investment strategy based on simple, transparent and objective rules that have proven to consistently outperform over time.”

Rules-based investing refers to strategies by which investments are only bought and sold at scheduled times and based only on measurable financial attributes. By eliminating the fear of taking a loss or the greed that comes with falling in love with a stock, rules-based strategies insert discipline and the ability to limit the number of ‘big losers’ in a portfolio, according to Criterion.

McPherson suggests taking the lead from companies that are buying back their stock. Since companies often buyback their shares when insiders feel that the firm’s stock is undervalued, this value approach has the potential to provide downside protection in bear markets, he notes.

High dividends are one of the most important elements of total return over the long term. Picking companies with the highest dividends, according to Criterion, can provide a cushioning effect in down markets since dividends yields usually rise when share prices fall.