Ross Jardine - Chapter 2 - Emotions of Investing
June 1st, 2008 | by Scott |Ross Jardine’s book Bear Market Game Plan, Strategies for Success in Choppy Markets explains that in a down or bear market such as we are experiencing right now perhaps the biggest challenge facing an investor is to keep your emotions in check. Investing is not done with you heart, its is done through much research, time and effort and using strategies and practices that have stood the test time, and which maximizes your opportunity for success.
There are two primary emotions that the investor has to watch; fear and greed. Greed is what got us into investing in the first place. Greed or the desire to make money is what prompted us to make investments; after all we invest our current money to make money in the future. Fear however may keep us out of the market, which in turn will result in lost opportunities. Fear can paralyze investors, keeping us out of a market that others will capitalize in. We may sell off out of fear, instead of staying the course when the value will return to our portfolio. Greed also can work against, as we try to squeeze profit out of stocks that we should have sold weeks ago. Greed can lead to losses, but fear will cause us to miss out when we could be profiting.
Some things to remember when trying to develop a strategy for riding out a bear market:
- Recognize the warning signs. As the economy shifts or changes there will be signs to pick up on early. Watch out for the warnings signs of a bear market to be best prepared. Do not fall so much in love with any particular stock that you cannot see the value of selling it at the right time. We can hang on the emotions that things will get better.
- Getting off the train. Try to get off when you have a chance. Sure if you sell the stock now you may have only a 10% loss. But if you hold onto it, in another week it could drop another 10% in value. While you never want to lose money, it is always better to lose a little than a lot. No matter what investment strategy you choose, you will also suffer some losses, the smart investor doesn’t avoid loss but he does minimize it.
- Admitting you’re wrong. You are going to make mistakes when investing, don’t be afraid to admit it when you are wrong. If a stock has gone bad, admit to your self that it was a mistake to purchase it and cut your losses. At the same time if you plan on selling a stock after it has risen 20%, follow through with the plan. It is always better to sell too early than too late. If you hold on too long, you may lose out rather than gain.
- Eternal optimist. We want to believe in the value of what we are buying and that it will make us money. There is a natural optimism that some investors have in stocks. Guard against it in order to make the best decision.
- Fighting the trends. An optimist has a tendency to ignore the trends of the stock market or the market sector that he is trading in. Learn about market trends then follow what you have learned. Be aware of what is going on in the markets, they have been around long enough so study them and use what you learn.
Follow Ross Jardine’s Bear Market Game Plan and you can be successful even in a down market. What are your thought? Please feel free to leave a comment.