In everyday life, our feelings help us survive and succeed. Fear keeps us safe from harm. Excitement drives us toward opportunities. Intuition aids us in making quick decisions when time runs out. These emotional instincts are useful, sometimes even lifesaving.
But when it comes to investing, the very feelings that serve us well in other areas can work against us.
Feelings & Investing
Consider fear as an example. In life, if something seems dangerous, it’s usually wise to step back. But in investing, fear during a market decline can cause investors to sell, often at a loss, turning a temporary market dip into a lasting financial setback.
Likewise, when markets are rising, fear can appear in a different form: “The market’s too high, the fundamentals don’t support it. It’s due for a pullback.” Although following such feelings and intuition might seem correct, they often come with a high cost.
Excitement can be just as misleading. Investors are drawn to buy into the latest trend because it has been rising in value. Emotional excitement might push us to buy high, but my experience shows that such actions often lead to regret when the trend suddenly flips.
And then there’s intuition. In relationships or careers, gut instincts can sometimes be useful. However, investing rewards discipline rather than instinct. The market often moves in ways that seem irrational. Relying on your gut usually means reacting to noise instead of fundamentals.
Becoming a More Successful Investor
Successful investing involves replacing reactive emotion with a deliberate process. It doesn’t mean ignoring your feelings, but it does mean recognizing when they might be leading you off course. Just as you wouldn’t buy a car or house based solely on emotion, you shouldn’t manage your portfolio that way either.
In life, feelings act as guides. In investing, they need to be questioned and verified. That’s one of the main reasons I’m here—to help make sure your financial decisions are thoughtful, deliberate, and aligned with your values and long-term goals.
Stay relentless,
Scott
©The Behavioral Finance Network