"If a person can see both sides of a problem, you know that none of his/ her money is tied up in it."
What in the world does that have to do with investing? Oddly enough that short phrase sums up in an admittedly odd fashion, the very crux of what determines a successful investor versus that other guy!!
Breaking it down! The first half states that a person sees both sides of the argument. Well I can assure you that’s never happened in arguments I’ve witnessed unless one side just wants to duck and run. Every day you can read the news and learn of two (or more) who got into a heated argument (operative word being “heated”) and a fight might erupt, shots are often fired, one party stomps out and lays a little rubber trying to get away; we’ve all read, seen and heard about such episodes.
What’s the difference in seeing both sides versus the ugly things described above. Seeing both sides demands LOGIC, absent passion. There is no emotional involvement in part one of the quote.
In the second half there’s a little kerosene tossed in and a fire is lit, otherwise known as EMOTION!
If there is a truism, it’s that people have an emotional attachment to their money. It doesn’t matter if you are a new investor or seasoned, the first rule of investing & the most difficult is:
- Never get emotional about investing! It will be your downfall, not to mention, expensive! NEVER forget or discount this which is why it’s first! Your bottom line will be constant reminder of how well you paid attention. There’s a good chance your better half will help that process along.
- Stay with your discipline! Like diet and exercise… those things no one wants to be reminded of because “it’s hard” — you want to say that with a little whiny tone for effect! Well DUH!! If this was easy that nasty income inequality, the new buzz phrase, would not be an issue or even discussed.
I hate to break the news but when the doc slapped your behind in that first hour you were on display, it was to get your attention and introduce you to, REALITY! Some days it can be a real bitch! But it can also build some character so learn to control those pesky emotions!Never get emotional about investing! It will be your downfall, not to mention, expensive!
Pay attention now because I’m going to cite some common mistakes you will make or have made when you put your brain in the closet and pull out those red hot emotions:
(A) you have money invested (the vehicle is not important at the moment). The market is moving to the upside, you’re feeling cocky, & sure you’ve got this investing stuff nailed! Then the inevitable happens! Your position starts to go south & the strategy you’re using tells you to bail out.
But those gains felt so good and if goes back up I’ll miss out, and that nasty thing called GREED takes over, so I don’t sell. (a little whining here helps set the tone) That leads to the next UH-OH!
(B) It’s called “hold and hope” — hardly original and this one can get REALLY ugly, So pay attention while I prepare a couple scenarios: in the first one you buy a stock or a mutual fund and you’re all fired up, ready to make a killing. OPPPS —the stench of emotions, is in the air! Count on it! The your great pick goes in the wrong direction. Your brain that’s in the closet tells you to sell and not turn a small loss into a big one. But Mr. Emotion, who’s not in the closet, tells you that as long as you still own it, there really isn’t a loss! It’s “hold and hope” situation one.
Situation two is even worse and more humiliating (Mrs. Emotion has arrived) [equal opportunity blame]
because in this incident the stock or fund you bought was off to a good start, you had a profit, felt like Einstein and then it started going down. This time “hold and hope” got a grip so tight that you let the profit turn into a loss. Well that’s not acceptable so a second bad decision is made. Einstein decides to just hang in there and when it comes back, he tells himself, “I’ll sell it!” Wanna bet?? You’ve been infected with an equal opportunity destructive investment disease: emotional decision making!
The investment strategy you once had, was tossed out the window or maybe it’s in the closet with your brain. Money is consistently made in the markets by following rules!