How to combat greed and become a more successful investor
Greed is one of the main driving forces of the stock markets. But, if you allow it to sway your investment decisions, you could end up throwing good money after bad. Read on to find out how to spot greed interfering in your decisions and how you can stop it…
Greed can have terrible financial consequences on your investment portfolio. And it’s very hard not to let greed affect your investment decisions.
Examples of greed affecting your investment decisions include buying for a quick profit and holding onto a share regardless of the cost
Here’s another example of when greed stands in your way to investment success, explains Gareth Stokes in Fear, Greed and the Stock Market
Don’t let greed let you “buy after the fact”
This is also known as following the crowd.
At the height of a market rally, the papers are full of bullish sentiment. Everyone you speak to has made money in the markets – your friends, your neighbours, even your pool man!
Greed will force you to enter the market because it won’t allow you to ignore the fact that others are making ‘millions’ while you’re sitting out of the market.
Greed and the allure of cold hard cash will win out in the end, and you’ll enter the market too late.
You’ll follow the herd instead of leading it and enter the market just before the crash!
The best way to fight the ‘greed’ effect
So what can you do? How do you ensure that this emotion doesn’t wreak havoc with your investments?
The best approach to the problem of greed is to realise there is no cure for it. Greed will always exist in society and it will always exist somewhere in your personal psyche.
You can’t pop a pill to cure greed so you’re going to have to learn how to trade around it.
You need to use self-discipline
You have to apply a disciplined trading strategy and create a set of rules that you stick to, no matter what.
Provided you don’t bend any of these rules you’ll never be affected by greed when you trade again. You should leave no place for greed in your trading system.
While greed might still affect you emotionally, the emotionless rules in your trading system will simply cut it out!