When it comes to many areas of your life you can rely on your emotions and instincts or gut feelings. But when it comes to investing in the stock market this is a big mistake. Not many people are able to use their instincts to make successful trades. So if the professional investors can’t do it then you shouldn’t fool yourself into thinking you can, especially if you a beginning investor. You need to invest with a proven strategy that has its foundation backed by fundamentals and solid research.
The same is true for your emotions. Most investors are driven by two main emotions, namely fear and greed. And, as has been proven time and again, using fear and greed to guide your investment decisions will usually lead you to lose money.
When you see a negative news story about a stock in your portfolio and you fear for your money, you may rush to call your broker and scream “SELL, SELL, SELL!” Without a second thought. This is a serious error. You are not making a rational decision by doing this. Emotions have no place in trading.
I am certainly guilty of this myself. I was watching CNBC one day about one of my stocks and the news was not good. My stock was down 25% in one day! I sold. Then I sat down and took a step back to see how bad the news really was. The stock was punished too severely. The news was nowhere as bad as I thought it was. Life went on and the “grey clouds” passed over the company.
The worst part was that I never bought back into the company and missed as it zoomed from $8 to $28! Only a 350% gain I missed out on because I let fear and greed make my investment decision.
The point is whenever fear or greed is involved, you will lose.
Another big emotion that can prevent you from making good investment decisions is love; falling in love with the company you have an investment in. When the stock is falling due to the fundamentals and the business is no longer viable and it comes time to dump it, you need to be able to do it without blinking. If you can’t separate your love from the company then it will cost you big. Try to never get attached to any of your investments. You became an investor for one reason and one reason only...to make money.
You are not investing because you love the stock or because you enjoy the rush. You are doing it only to make money. Period. Never get emotionally attached to anything you invest in. Because if you do and can’t separate yourself from the stock then you’ll never make any money because the only way you’ll make any real money is when you actually “sell” the stock.
About the Author:
You can get wealthy investing in the stock market as long as you can keep your head on straight and leave your emotions at the door. Franco Smeaux is the owner of Lux Investing, a premier resource for investing information. For more information, go to http://www.luxinvesting.com
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