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Why fear and greed aren't the emotions you should ignore when it comes to investing on the stock market…

by , 09 September 2015

Emotions get a bad name for interfering with our investing decisions.

They can lead you to make mistakes. When stock market volatility hits, fear can lead you to sell prematurely. When a position is doing well, greed can lead to you take on higher risks.

So are fear and greed always a bad thing? And are there any other emotions that can do more damage?

Let's take a closer look…

Why a little bit of fear and greed is a good thing

It’s easy to see why emotions play such a big part in investing, after all it’s your money at stake.

Greed is what pushes you to invest in the stock market in the first place. Without it, you’d have no desire to make money.

If no-one acted on greed, no-one would strive to improve their lives or start new businesses. The world requires risk takers.

Fear also helps you from getting carried away, Alexander Green in Investment U explains. Fear is there to remind you that you can lose money and it can be painful.

These two emotions balance each other perfectly. Greed makes you look up, yet fear reminds you to look out below too.

These two emotions can put a spanner in your investment works

Hope is one emotion that you need to eradicate from your investor tool kit.

You can’t just hope the market is going to do something. If you’re already hoping about your investments, something is not right.

You don’t invest because you hope a stock will rise in price, you invest because owning a diversified portfolio of stocks is a great way to build and protect your wealth over the long-term.

Just remind yourself of this when the market is on a roller coaster ride.

The other emotion to avoid is regret. Don’t regret making decisions about your investments. Instead you need to make a plan not to make the same mistake again and move forward.

It’s easy to be regretful when things don’t work out as you want.

To combat these emotions, you need a solid investment strategy to stick to. Your strategy could include position sizing, stop losses, top slicing, etc.

So there you have it. Why fear and greed aren’t the emotions you should ignore when it comes to investing on the stock market.

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Why fear and greed aren't the emotions you should ignore when it comes to investing on the stock market…
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