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Don't let fear and greed drive your investing
My close look at investment behaviour has made me realise that fear and greed are not two distinct but complimentary emotions of an 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 friends and provide for benefits like higher education to children in prestigious colleges, a grand marriage for children and a house with all modern amenities and furnishings leads to greed.
It is interesting to observe our brains dwell in the middle of negative emotions like fear, disappointment and greed, and these emotions influence our investment decisions, thereby creating confusion. So we as investors start looking for security and confidence in our investments.
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The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.
Don't let fear and greed drive your investing
This makes me highlight two powerful influences on investor behaviour namely a) An investment portfolio based on one's personality 2) The follow-the-flock policy.
Basing investment portfolios on your 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 on 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 less.
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.
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Don't let fear and greed drive your investing
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: 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 despairing nor elation of situations prove 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 influencing 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.