Q: How can I keep my emotions from interfering with my investments?
A: This is a very important question! I can’t think of a more detrimental problem for an investor than not using rational judgment and letting emotions in making these decisions. Let’s look at this issue in more detail.
Classically, the most extreme and dangerous emotions in investing are considered to be greed or fear. Greed seems simple. It is the desire to return excessively and quickly on one’s investments. This sentiment is often triggered by people around them making money seemingly “too easy”. Interestingly, it is often combined with FOMO, the fear of missing out.
This behavior is also seen when the price of an investment falls and investors are just waiting for the price to ‘back’. These two aspects of seeking excess returns are very powerful. Remember the skyrocketing house prices from 2005-2008? At the time, it looked like he could make double-digit profits just by “flipping” by buying homes and condos. Everyone around seemed to be making a lot of money doing it. It was hard to resist.
The same thing happened with tech stocks in the late 1990s. At that time, a profitless company was valued at a staggering amount in just a few years. I remember hearing stories about portfolios going up 20-30% month over month. Those who make the biggest gains early on due to luck in timing often end up with the biggest injuries in the long run (assuming they were foresight rather than just luck).
Of course, both stocks in the late 1990s and real estate a few years later ended very badly for the emotionally swayed. People should adjust to feeling that they have an opportunity (or, worse, the potential) for extraordinary gains, and generally avoid acting on this perception. Seeing others profiting abnormally easily should sound alarm bells rather than an urge to join them.
Conversely, fear of loss is also a powerful emotion that needs attention. This happens every time the price of an investment falls.When you’ve been making very good profits for a long time and have just returned the favor Several An increase in price can trigger the recognition of a loss. When this happens, we become “fixed” to the belief that all paper interests are real.
Any long-term investor will understand that every three to five years, the stock market price drops significantly and eventually recovers, replaced by real gains.
Investors should use this key knowledge to combat feelings of fear and avoid selling (and fixing lows) as a result. Paradoxically, lowering prices at typical shopping venues (such as tuna in supermarkets) usually encourages additional purchases. However, in the investment world, falling prices often stimulate selling impulses.
I would argue that low levels of fear can be the right emotion for investing. This avoids the behavior of investing based on greed (or FOMO), which usually increases the likelihood of good long-term results. It is often said that the absolute best investments are those that act with caution, and this combined with perseverance usually pays off.
Steven Podnos is a paid financial planner in Central Florida. He can be reached at Steven@wealthcarellc.com and www.WealthCareLLC.com.
http://rssfeeds.floridatoday.com/~/741919481/0/brevard/news~Afraid-of-letting-emotions-drive-your-investments-Heres-how-to-avoid-that/ don’t be swayed by emotions