Avoid these 2 emotions to be a successful investor

An experienced long-term investor once told me that when he looked at his face after a share market fall he found despair and fear, while the same face showed enthusiasm and happiness with a share market appreciation. This made him realise that greed and fear were the two magnetic forces that caused confusion in investment goals.

A balanced and objective approach would help him achieve his long-term financial goals.

Hindrances to positive and objective approach to investment decisions:

My close look at investment behaviour has made me realise that fear and greed are not separate but complimentary emotions in any investor.

Greed is merely a mental state born out of fear, with investors feeling the fear to lose money and then being unable to meet their family financial obligations. In addition, social pressures to earn in line with close relatives and peers provide for benefits like higher education in a prestigious college, a grand marriage for children and a house with all modern amenities and furnishings leads to greed.

Ramalingam K, an MBA (Finance) and Certified Financial Planner, is founder & director of Holistic Investment Planners (P) Ltd (http://holisticinvestment.in)

It is interesting to observe how our brains dwell in the middle of negative emotions like fear, disappointment and greed, and these emotions influence our investment decisions, creating confusion in investment decisions. So we as investors start looking for security and confidence in our investments.

This makes me highlight two powerful influences on investor behaviour namely: An investment portfolio based on ones personality and the follow-the-flock policy.

Basing investment portfolios on ones personal likes and dislikes are the first of the powerful influences. It is like investing in cars and fancy gadgets just because you love them. Investing in shares just because you think they are smart or flashy is ambiguous, for they could sink in the long run. It is better instead to invest in profitable ventures that pay in the long run. It is true; our investment fancies make us pay a heavy price.

The follow-the-flock for fear of being the black sheep policy makes you as an investor to believe in following others in the share markets. You would then be playing a vital role when the going is good and exiting never to return when the share market goes down. The pitfalls of group behaviour lead us to buying high and selling low.

It is also true that follow-the-flock behaviour leads to unbalanced investment emotions of black or white (wrong or right) with no shades of objectivity and rationality. In addition, group behaviour leads to extreme situations of profit or loss and price swings in the share market that is highly undesirable.

Buying high and selling low has made many investors suffer heavy losses in the long run.

A look at positive investment behaviour

Aim at lower returns for market forces play a very vital role in deciding the price. It is good to be investment smart with humility and lower aspirations that makes achievement of financial goals a reality. I have never known of any high return investments that did not have high risks.

Patience over a lifetime and being able to assume stress helps in aiming for long-term positive returns and contributes to assuming less financial stress after retirement.

Positive investment behaviour requires balanced moods, one of neither elation nor panic. Neither selling in a panic due to share market positions or adverse world or country conditions is advisable, nor is a reaction of extreme financial prosperity, both can destroy a lifetime of healthy investment.

A long-term investor needs to realise that neither despair nor elation of situations in civilization proves worthy for long term financial portfolios.

Let's just sum up

I am sure you would be congratulating yourself with all the knowledge gained and would neither allow emotions, group behaviour nor your personal likes and dislikes to influence your long term financial goals. It is true you would have also realised that patience, humility and appetite for stress could contribute to long-term achievement of your financial goals