Be Aware Of Your Emotions And Use Them Wisely When Investing
Post on: 20 Июнь, 2015 No Comment
Neuroscientists say that the brain has trouble making a decision without consulting its emotional side.
If true, then striving to remove emotions from investing is folly.
In a way, this is no surprise. Would you try to eliminate emotion when you listen to Bach or look at a Cezanne painting or read a novel? Is the art of investing any different?
The difficulty is that the emotions of an experienced investor are different from those of a novice. For example, when a stock is going wild on the upside, the novice feels great. But the experienced investor feels fear, or at least caution, creeping in. He or she has been around long enough to know how a climax run ends.
Here are some factors to consider about emotions and investing:
•Face your emotions. If you deny giving in to your emotions but then say I rely on my gut instincts, well, you’ve just contradicted yourself. Emotions don’t lose their power just because you call them something else.
•Emotions can be positive. A dash of confidence should accompany your trades, especially if the confidence is the result of research and sound chart analysis.
•You’ve heard that sound investing involves controlling your emotions. But control can be a form of denial. You might be better off striving for awareness of your emotions. If they’re running high, you ought to ask why. Do you have too much money in one stock? Are you uncomfortable with your level of exposure in the market?
•It’s not about you. The biggest mistake many investors make is focusing too much on themselves. If the only emotions you’re aware of are your own, you need to change your focus. The collective emotion reflected in the stock market’s overall action is far more important.
The stock market is human nature on parade, financier Bernard Baruch said. Pay attention to the whole parade, not just yourself. The Big Picture column, today on B2, can help.
•Learn about a stock’s personality before buying shares. Use a chart to observe how the stock behaves under different conditions. Some stocks have a history of rising confidently after a proper breakout in a bull market. Others have a history of hesitating out of the gate. Some have a history that is more cyclical gains are seldom big, and the stocks have a briefer run.
•Know your financial disposition. Are you naturally aggressive or cautious with money? Are you deliberate or impulsive? Answering such questions is tricky because your personality as an investor can be different from your temperament overall. Some people who are timid socially are bold financially, and vice versa.