Monday, July 14, 2014

Investing less emotionally

Investors are  rational people processing all the available information in the market to make logical
decisions for maximum profits. But the truth of the matter is that most
people aren’t rational or logical investors. They buy stocks on tips from
friends or even strangers, because of something they heard on the news, or
because a company makes a product they love and are sure it’s going to be
a big hit. They know nothing about the company, its management, or the
stock’s history.
Don’t let emotions govern your investment decisions. Remain particularly cautious
of the following emotions:

Greed: Greed often seduces investors into making terrible decisions.
During market rallies, investors often succumb to a herd mentality,
throwing their money into the hottest sectors and companies, inflating a
bubble that invariably bursts. Greedy investors often tend to make bets
they can’t afford to lose and then fall into the trap of making even bigger
bets to recover their losses.

Fear: Fear is the flip side of greed. People who previously lost money
in the market, or just witnessed the pain felt by others, can experience
such a massive fear of losing money that it paralyzes them from doing
anything. Instead of taking on some risk with suitable investments, they
put their money in low-risk investments with poor rates of return.

Love: Don’t fall in love with your investments. They don’t return your
love but have a good chance of hurting and betraying you. All too often,
people refuse to sell when stocks begin to fall because they really
believe in the company. Maybe they found it themselves or received a
hot tip from a friend. Yet, when a stock falls sharply on very bad news,

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