SURE we all know a thing or two about investments and how they can either make or break one’s bank account.
We’ve heard about bad investment stories and how people have recovered from such, as well as good investment stories that stir us to start investing.
Our reaction to a bad or good investment story is a sure sign that emotions are involved when it comes to investing. However, too much involvement of emotion can put our investment strategy at risk.
Let’s take time to talk about emotional investment and emotional investors, what it is and what are the signs that a person could be one.
One trait that is very evident among successful investors is definitely emotional stability. This means that their financial decisions when it comes to investing rely on practical, factual, and premeditated information. On the other hand, emotional investors are greatly influenced by their emotions when making a financial decision.
While it has been said a couple of times that every financial decision is an emotional decision, a couple of researches and fact-finding can make our decision reasonable and not plainly an emotion-driven one. It is when an emotional investor solely rely on how he or she is feeling at the moment of making investment decisions that makes him or her an emotional investor.
Let’s see some signs that a person could be an emotional investor:
- They decide to invest because they’re happy (or sad)
This is an obvious sign that a person is an emotional investor. Making investment decisions during extreme happiness or sadness speaks about someone who is being governed by his or her emotions. The likelihood of regret and even ending up with a bad investment is high.
Important financial decision such as making an investment requires in-depth study and understanding. It is through this way that one can take more control of his or her money.
2 They sell their stocks if the value of their investment falls
Volatility in investments are inevitable. It is just how the game goes. It is for this reason that an investment is considered a risk. The rise and fall of the value of your investment is unpredictable and most of the time, it is also what scares many investors.
But for well-informed investors, they know too well that this is part of the risk. This, however, is not the case among emotional investors. Emotional investors tend to sell their stock once they see the value declining.
Why? It is because they are dictated by their emotions, they are afraid that they won’t get any return from their investment, they are worried that they might have to invest more money, they are always freaking out about future investment failure, something that is not actually happening just yet.
- They are hooked on news about what others say
Much like when we are hooked on the weather channel during times of natural calamities, emotional investors can’t seem to get enough updates on how their investments are doing, hence, we often find them checking out money or stock reports in paper, TV, or the Internet.
They are always stirred by changing updates regarding their investment and are often triggered to make decisions based on the emotional level they’re in when receiving the updates. The chances of making bad and premature investment decisions then become high.
- They prematurely celebrate their profit
Because emotional investors act on emotions, every time they come close at achieving gain for the investments they make, they can’t help but prematurely celebrate their profit. Some of them use or even borrow the money even before they even take their profits.
Good investors are patient and wise. They know how to wait and cash in first before they even decide what to do with the earnings.
“Only when you combine sound intellect with emotional discipline do you get rational behavior.” – Warren Buffet
THINK. REFLECT. APPLY.
Why is it important to control our emotions when it comes to making investment or money decisions? Have you ever decided on money matters during your emotional times? How did that affect your financial decision?