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How to prevent your emotions playing havoc with your investments

by , 22 April 2014

As an investor, you may think that fear and greed are your biggest enemies when you invest. But it's not the case. There are two other emotions which are far worse. They can result in you making the worst investment decisions. So what are these emotions you need to keep at bay? And what can you do to conquer them? Read on to uncover these investment gremlins…

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Fear and greed are important when you invest

As well as having their disadvantages, fear and greed actually help you when you invest, Alexander Green in Investment U explains.

On the one hand, greed can make you to hold onto a stock for too long just in case you make more profit. Fear can prevent you from making the most out of market bottoms and buying while shares are cheap.

But greed also impels you to invest. If there wasn’t a chance to make money, you wouldn’t invest. And fear helps you from making silly investments, as you fear losing money.

Hope and regret are an investor’s biggest challenges

Hope and regret can wreck your investment plans.

Take hope. If you want to be a serious and successful investor, you can’t just hope that the market’s going to go your way. By hoping things will turn out right, you’re playing with fire.

Regret is equally as bad. Regretting that you bought a share or didn’t buy something else is fruitless.

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How to combat hope and regret

You can prevent hope and greed interfering with your investment decisions by ensuring that you have an investment strategy in place.

For example, by investing in a diversified portfolio of great companies is an investment strategy for building and protecting your wealth.

A solid investment strategy will allow you to take advantages of opportunities as they present themselves. A solid investment strategy includes:
  • Position sizing;
  • Hedging your risk;
  • Protecting your profits; and
  • Preserving your capital.
So there you have it, how to prevent your emotions playing havoc with your investments.



How to prevent your emotions playing havoc with your investments
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