Yes, you have read this right. Investing, which is considered to be a great way of fulling our life goals also has something which can actually make our journey more difficult than it should be in real. The Two Poisons of Investing are a part of our behavior which we have and possess during our journey of Investing and these are Fear & Greed. There is a great saying that “We must focus on Investment’s returns rather than the Investor’s returns as Investors are only able to get half of the returns from what actually their investments have the potential to make.”
This post is written by our team member- Nikhil Bhuwania (Certified Financial Planner)
Fear & Greed
The fact on which I would like to throw light on is that, not only putting the money into the best-performing stocks or funds would make you rich but what actually matters is our behavior & thought process towards our Investments. In this endless world of information, we easily get manipulated and sometimes take wrong decisions that reflect in the long term. Fear & Greed are two such strong emotions which can either help you in getting what you want/can or, can give you what you deserve unlike what we say for the Power of Compounding, it is the 8th wonder of the world and those who know it, will gain from it and rest will pay for it.
One can ask how these emotions create a bad impact on one’s Financial Life? So, the simple answer is that What we act is actually a reaction to what we feel & think. Even in our normal life, we like to go for the things which we find best on our parameters without thinking if it is really best for us or not. We are just attracted to that due to our herd mentality or the fake hype that is being presented. The same happens in investing also as people need to understand that Ups & Downs are a part of the investment cycle and they are as normal as Breathing for Humans. So, getting worried by seeing your portfolio in red and trying to get it replaced by a performing portfolio can actually harm your investments more than it what will benefit you. Therefore, it is important to know the risk associated with the instruments you are using and also ascertain the level of risk you can handle until the emotion of fear knocks your mind. The ones who think that they know everything about the market cycles and will always be in profit are actually those who have never got a lesson from the great teacher i.e. The Market itself.
Must Read – How and why the stocks price change
This too shall pass
“This too shall pass”, I personally am very fond of this small 4-word statement because it actually defines the truth about life and something we should also apply during the knocks from the poisons as what is today will definitely not be tomorrow so, if one is being too greedy in the bull phase should not forget that there will also be a bear phase after that and must be ready for the lesson from the teacher. The common question which the people have that this is what we have earned after a long journey of hard work, why shouldn’t we attach our feelings with our investments? To this what I personally believe is emotions should be with your investments but there should be sync of your heart with your brain during those periods. As these crucial moments sometimes write the whole journey of the financial life and for this one must be aware of what one is doing because the real challenge arises when we actually don’t know what we should do during such times and end up taking such steps which should not be taken. One such and common step is withdrawing the money at the lowest points of the market and putting everything when the market is high, and it will always give you a very bad experience, and end up getting nothing even if there are chances of something.
It is always better to observe our actions during such periods and try to avoid the same next time because life may give you another chance once but not every time, so staying wise and be with someone who can help you to find the answer to the anxiety which happens and could easily pull you out from the storm that may turn out to be devastating if not taken care of and the real person who can help during such time is the one who has the expertise and has seen many such happenings in the past because during such periods emotional support is required who can console the level of anxiety when it is on the boom and will advise and guide you towards a better way.
Perks and perils are part and parcel of all that we want to do in life. So we must go on and never stop.