Investors often find themselves in situations where decisions are dictated by both the heart and the mind. Despite the fact that it is not shameful to consult with your own emotions before making transactions, it is extremely important for the buyer of shares to maintain sound thinking and not give in to the “hot head”. There are tons of things in the financial world that rock the stock market up or down, but most of these factors have a short-term impact..
Curtis Chambers of the Chambers Financial Group believes that “perhaps the most important thing in investing is to understand that investor psychology often works against him.” When the market is in a good condition, everyone wants to buy, and when in a bad state – to sell.
Here are eight emotions that interfere with your investment. Watch them not to lose control over your capital.
1. Envy
It is one thing to admire the financial successes of other people and study their path. But completely different is envy, which can easily lead to wrong investment decisions. Under the influence of successful compatriot investors, some people try to duplicate behavior, but do not achieve high success. Unfortunately, the strategy of one person is strongly tied to a specific point in time, the state of the market, the information field, as well as monetary opportunities.
According to Ron Yaish, managing partner of Yaish Financial Services, investors often hear stories from friends, family members or colleagues about their latest investment performance and are heavily influenced. In a personal meeting, they share their successes and sometimes offer to copy a friend’s investment, but this does not lead to good results. More often than not, this is the way to lose money and bring up bad investment habits..
Follow competitors and draw your own conclusions, and not just duplicate someone else’s strategy.
Studying the success of one investor with building relationships and conclusions is right. Copying with the goal of surpassing is not, because in 9 out of 10 this will not give a result at all.
2. Fear
Fear is one of the primary human emotions that cannot be completely ruled out. She plays a large role in everyday life, and in investment adventures. These are the emotions that impede investment..
Real estate marketing expert Bruce Islion said: “I think fear is probably the most disastrous emotion. It can easily prevent you from making a good investment. It forces many people to abandon assets at the very first negative signs, which also prevents them from maximizing profits from investments. ”.
Despite the fact that all investments are more or less related to risk, fear prevents you from controlling what is happening and moves you away from the goal.
Ruedi Wealth Management CEO Paul Rudy said: “My 32 years of advising people say that investor mistake # 1 is a panic. Even experienced investors come under its influence when they perceive the usual decline in the market as permanent. This is fear that makes you act impulsively, sell assets. But impulsive behavior and investment strategy are extremely distant things from each other. “.
3. Hope
Your investment success may be at risk, not only because of fear, but also because of excessive optimism and belief in the best. Hope easily becomes a negative factor because it inflates expectations. Regardless of whether you have an impressive investment experience or not, the hope of a positive outcome of a given period makes you risk too much.
In addition, people who are overly optimistic about investing experience the so-called regency shift. That is, they suggest that something that happened recently will continue in the future..
Studying historical data is very important for developing an investment strategy, but you need to be careful. If some data from the past meets your desires, this does not mean that everything will go according to a favorable scenario..
In life and in business, optimism is good. But make sure that it does not turn into high expectations that ruin your investment portfolio..
4. Stubbornness
Believing in oneself and maintaining enthusiasm is right, but it is very important to ensure that this faith does not translate into stubbornness and self-confidence. These behaviors deprive the investment strategy of flexibility and force them to make erroneous decisions..
Rejection of one’s hopes and past decisions requires recognition of error. It is very difficult for many people. But investing in a different way is impossible – until you acknowledge that the purchase of certain assets was a mistake, it will be difficult for you to sell them. It’s difficult to admit a bad decision, but it is necessary to reduce losses and further profit movement.
Belief in yourself, confidence in your position and the desire to defend it are things without which it is difficult to succeed in business. But don’t forget to listen to the voice of reason so that your money is not in jeopardy.
5. Pride
Most of us would like to be the kind of people that beautiful success stories tell about in the investment industry. And if you are already becoming an example for someone, do not let pride come to the fore. The fact is that, being carried away by the discussion of past successes, you take your hand off the pulse of today’s events. You don’t get enough information and you don’t feel the momentum of the market, so you make weak decisions.
A series of good results and an increase in capital do not make you invulnerable, but, perhaps, on the contrary, put you at risk. Do not think that you have guessed the market and now it will always be in your hands. Such pride has destroyed more than one promising portfolio..
In addition, pride often interferes with the sale of those assets that are falling in price, or engage in too active resale. Both retention “out of principle” and unhealthy activity in trading is a mistake.
All your decisions should be dictated by market conditions, company positions, social, possibly political factors, but not pride or desire to show character.
6. Anger
Emotions that interfere with investments will definitely not do without this. Michael Weiss, founder and president of YieldStreet, mentions: “Anger makes you think irrationally, impulsively. He raises a person’s ego above investment judgment ”.
You know, anger is considered a negative and harmful emotion even in a form of activity such as boxing or martial arts. Investing is also a struggle, but closer to chess. You are struggling with circumstances, general conditions, immersed in competition with other players.
Weiss recently managed a “healthy” fixed-income transaction in which investors did not like the behavior of the borrower. Enraged by poor communication, the lead investor exited the deal. Not only did he spend extra time and money to end his participation in the case, he also lost an impressive amount of money. Because the deal, as expected, turned out to be highly profitable.
Keep your temperament (if you have “hot” blood) to achieve better results. Patience and composure are one of the key tools for a successful struggle in the fields of the stock market.
7. Shame
Shame affects us subtly and cunningly, but at the same time plays a significant role in investing, because it emotionally pinches a person, deprives him of freedom of thought. Because of this, profitable opportunities are missed and moments are missed to slow down.
“Industries in which moral pressure, such as pornography or medicinal marijuana production, can put a lot of pressure on investors, in fact, are often very profitable. However, many investors avoid them for personal reasons. They are ashamed to include such assets in their portfolio, ”says Michael Weiss. It is extremely difficult for some investors to overcome this moral dilemma, but it is necessary to maximize profits and develop wealth..
If your goal is to improve your portfolio, don’t let shame, discomfort or prejudice influence decisions..
8. Depression
At certain points in a career, depression has a tremendous impact on the investor and his behavior. The whole point is in human psychology – we, as a rule, are more emotional, and therefore we better remember negative experiences than positive ones. Therefore, past failures may occur in your head, even when you take a shower, ride the subway or stand in traffic.
According to Barclays, investors usually experience depression immediately after their shares decline and go into a risk zone, that is, they can cause losses.
While depressed investors may think that they are protecting their wallets, they actually make emotional decisions that are far from cold rational calculation. It is important to remember that when you play in the market, the results of your victories often exceed the results of defeats. But people, unfortunately, are not inclined to remember cases in which they won 30%. In their memory, the trace of a loss of 20% is much deeper imprinted. Depression, along with other emotions, also hinders investment.
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Emotions can significantly impact investment decisions, often leading to poor outcomes. Fear and greed can cloud judgment, leading to impulsive actions and wrong choices. How can investors prevent emotions from derailing their financial success? What strategies can be employed to maintain a rational mindset and make objective decisions when it comes to investing? Share your insights and tips on mastering emotional control in investment to safeguard our money from being eroded.
Investors can prevent emotions from derailing their financial success by following some key strategies. Firstly, it’s important to establish a well-thought-out investment plan and stick to it. This plan should include specific goals, risk tolerance, and a diversified portfolio. By having a plan, investors can prevent impulsive actions driven by fear or greed.
Another important strategy is to maintain a long-term perspective. Short-term market fluctuations may trigger emotional reactions, but successful investors understand that markets can be volatile in the short term. Maintaining a focus on long-term goals helps to overcome emotional reactions to market ups and downs.
Additionally, it’s crucial to do proper research and stay informed about investments. Knowledge provides confidence and helps in making objective decisions. Seeking advice from professionals or financial advisors can also provide an unbiased perspective and prevent emotional biases.
Lastly, practicing self-discipline and having a well-defined exit strategy can help in safeguarding investments. Setting predefined rules for when to buy or sell can minimize the influence of emotions on investment decisions.
Mastering emotional control in investing requires patience, self-awareness, and constant practice. By implementing these strategies, investors can stay rational, make objective decisions, and safeguard their money from being eroded due to emotional biases.
Emotions often hinder investments by clouding judgment and leading investors to make impulsive decisions based on fear or greed. These impulsive actions can kill potential profits and lead to unnecessary losses. However, how can we prevent emotions from taking over our investment decisions? Is it by sticking to a well-defined investment strategy, seeking expert advice, or utilizing certain psychological techniques to manage our emotions effectively? Share your insights on how to overcome emotional biases and maintain a rational approach to investing in order to maximize returns and minimize risk.