Investor’s Business Daily (www.investors.com) is currently running a series of articles on emotions and investing.
Dealing with emotions and money is a very important part of investing success. In fact, their effect plays a major part in how well you do financially.
Emotions are not your friend when it comes to investing. The primary emotions that affect you and your money are hope, greed, fear, and denial.
Successful investors do their best to eliminate or at least reduce the effect these emotions have when it comes to money. If you do not understand them and control them, they will control you and you will make poor investing decisions.
Emotions cause you to make the wrong decisions with your money and your investments. For example, you will end up buying at the highs (out of greed or fear of missing out) and selling at the bottom (out of fear of losing your money).
You will also buy at lows (hoping for a bargain), but end up selling at even lower lows (usually in anger and disgust, and in denial at being wrong).
You will also end up missing major market moves out of fear, as these major moves generally come after a large correction in the market when people are scared to invest.
Fear will keep you out of the market when you should be in, and greed will keep you in the market when you should be out.
No one likes to admit that they were wrong and made a mistake. Our society values people who win, not lose. Just as in sports, as an investor you will make mistakes that don’t result in wins. You will lose money sometimes. All investors lose some of the time.
The problem comes when a person’s ego – that part of them that is resistant to looking bad or admitting mistakes – keeps them in losing positions that end up destroying their investing funds. Many investors will not exit an investment with a small loss (out of denial that they were wrong) and end up getting out with a large loss because of this. Ego is a big problem, especially with men.
Keeping their ego in check helps investors achieve better investing results.
I highly recommend reading the following articles on emotions and investing:
If you are serious about your financial future, you need to learn how to minimize your emotions when you invest your money.
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