Emotions & The Share Market Equal Disaster

The human emotion of greed has a lot to answer for, especially in the share market. For example, you see a share price going up and up. You want your piece of the action. You jump in right on the peak. How many times have we heard that story? You are holding a share. Perhaps it is a mining share. You think you better not sell it. The price might go higher. And it does. Until one day it stops going up and comes down.

Remember the Tech boom. And the following tech bust. Did greed stop you from taking the money you thought you had made out of tech stocks? Did most of your paper profit evaporate? Are you still holding those next to worthless tech shares? You can blame greed for that one.

You have to teach yourself to buy shares when they are cheap. And to sell them when they are dear. And you have to make sure that you get plenty of practice doing this before you actually put real money into the share market.

But what if I miss out on an up move in the share price? I hear people saying this all the time and it is unfortunate that we are conditioned to see what we have lost and not what we have gained. So the usual answer is, how much have you put into your bank account.

There is no greed or any other form of emotional investing remaining in your investing repertoire.

Reacting emotionally as a result of market action and panicking out of the market regardless of price. Fear of missing out jumping into the market regardless of price.

When man was a cave dweller, in a time long, long ago, it was perfectly reasonable behaviour when he heard the sound of a sabre tooth tiger behind him, to react quickly to that threat and get the hell out of there.

Strange as it may seem, many participants in the share market still behave in exactly the same way.

The reactive behaviour that may have been appropriate and life saving in that dim, dark past but it is simply not appropriate and in fact down right destructive in today’s share market. And many other situations that occur in modern times.

When you react, your focus and field of vision narrow. Your senses are heightened to just what is going on around you in the moment. Your peripheral vision, memory and thought processes are inhibited. You function automatically and without much thought.

Before you enter the market you make a plan in the clear cold light of day. You do that before you go any where near the share market. You use actual, factual long term historic information to come up with your plan. Your planning horizon is large.

In your plan, you cater for all contingencies. You plan for the share price going up, going down or staying about where it is.

You know what you are going to do if the share price goes up, down or sideways. After all, the share price can do nothing more.

And you practice executing the plan sufficient times to make calm and clear disciplined investment decisions your habit, which replaces the bad habit of reaction if you have it. Any you put that profitable practice in place well before you risk a single dollar of your hard earned money on the real share market.