Beware
of Emotional Investing
When
it comes to investing, our minds can play tricks on us. You're more
likely to become a successful long-term investor if you pay attention
to how your emotions can affect your financial decisions.
In speeches to investors, psychologist and investor Nancy Crays has
explained that our emotions are invisible advisers that don't always
act in our best interests. They can cause us to lose money in the market,
realize smaller gains than we otherwise would, feel insecure or anxious
or overwhelmingly disappointed, or even quit investing altogether.
Crays points out how emotions such as greed dominate bull market times,
while fear directs us in bear markets. She explains that we learn that
it's not nice to be greedy, so we end up rationalizing our greed. It
gets to the point where greed seems normal in a bull market. Here are
some signs that you might be letting greed get the best of you:
* You feel responsible for all your gains.
* You're expecting your holdings to grow more than 15% annually.
* You're looking into riskier investments.
* You're more interested in hot stock tips than in the past.
* You can't stand being left out of the action.
* You wish all your stocks were in the current best-performing industry
or sector.
* You're convinced that the market is different this time.
To counter these feelings, stick to your investment philosophy. Don't
follow crowds and don't buy indiscriminately.
Meanwhile, in a bear market, you might be overly influenced by fear.
It can keep you from recognizing buying opportunities and might cause
you to sell when you shouldn't. Look within yourself for signs of low
self-esteem, depression, panic, guilt, and feelings of powerlessness.
To survive a bear market, recognize your emotions, stick to your investment
philosophy, and view the downturn as a buying opportunity.
Sticking to your plan is critical. Expect market upturns and downturns,
and don't let the emotions they conjure derail your portfolio's progress.
Next week: investor profiles.
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