Emotionless Investment

Investing with a clear head

As mentioned in a previous post, one of the problems in investing is that people like to think of themselves as traders rather than investors.

You can't compete at the traders games

There are several problems with having a traders mindset when it comes to investing. In trading, share prices react to information extremely quickly. Arguably, the quicker you are able to access information and act upon it before the rest of the market, the more potential moneymaking opportunities exist. However, I'm almost certain that there are no individual investors out there who are able to gather more information and act quicker than investment banks, professional traders and other investment institutions. Simply, you can't compete at the traders game, so don't play it! 

Become a rock - cold and emotionless

The other reason why you should aim to move away from the trader mindset is because for most people it is a mistake to ever trade on instinct and emotion. The problem with emotions in investment is that it can lead to the individual making very rash decisions, encouraging to take the absolutely wrong course of action.

The great investor of our time, Warren Buffett's old adage was that we should be "fearful with the market is greedy and greedy when the market is fearful". The problem with emotion is that it encourages us to go against these wise words. It is emotion that excites investors into buying into a booming market and fear that panics investors into selling when prices plummet. Unfortunately, investors should be doing the exact opposite. A falling market is a buying opportunity and a rising market, a chance to sell and secure a profit.

All too often emotion gets in the way of rational decision making. When making your investments don't be a hotheaded trader. You may get lucky once or twice but you will eventually lose. The game is rigged against you. Instead, become a cold, calculating, calm investor, immune to the passions that cause ordinary folk to make mistakes. Be emotionless in investing.

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1 comment

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